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A TREATISE 

ON 



COMMERCIAL LAW 



AND 



BUSINESS CUSTOMS 



THIS WORK IS DESIGNED AS A TEXT- BOOK FOR 

USE IN SCHOOLS AND COLLEGES AND 

AS A REFERENCE BOOK FOR 

GENERAL USE 



By ANDREW M. HARGIS 



>\3 



V\ 



COPYRIGHTED BY 

ANDREW M. HARGIS 

1901 




PREFACE 

The writer has endeavored in the following pages to 
state in a plain and concise manner the rules of law 
which govern in the common every-day transactions of 
life. No particular claim is laid to originality in this 
work, for, while it contains some new features, the 
wording of old and well-tried definitions has in many 
cases been retained. 

Special care has been taken to avoid technical lan- 
guage, and the subject, so far as possible, has been 
stripped of all legal phraseology. There is nothing 
in Commercial Law, when clearly stated, that places it 
above the understanding of any person of ordinary 
ability, for it is founded upon reason and common- 
sense. It is doubtful, however, if there is another sub- 
ject of equal importance concerning which the aver- 
age citizen knows so little. 

It is hoped that a careful study of this work may 
prove helpful to the general reader, as well as to the 
student. 

Andrew M. Hargis. 

Grand Island, Nebraska. 



TABLE OF CONTENTS 

Page 

Chapter I. — Law in General 7 

Chapter II — Contracts 13 

Chapter III — Consideration 27 

Chapter IV — Subject Matter 35 

Chapter V — Kinds of Contracts 48 

Chapter VI — Damages 59 

Chapter VII — Legal Remedies 63 

Chapter VIII— Statute of Frauds 69 

Chapter IX — Statute of Limitations 77 

Chapter X — Legal Tender 85 

Chapter XI — Payment 89 

Chapter Xll — Negotiable Paper 98 

Chapter XIII — Classes of Negotiable Paper 107 

Chapter XIV — Endorsements 124 

Chapter XV— Conditions of Transfer 130 

Chapter XVI — Presentment for Acceptance 141 

Chapter XVII — Presentation for Payment 148 

Chapter XVIII — Miscellaneous items peraining to nego- 

able paper 157 

Chapter XIX — Interest and Usury 180 

Chapter XX — Sale of Personal Property 189 

Cpiapter XXI— Chattel Mortgages 201 

Chapter XXII — Guaranty and Suretyship 210 

Chapter XXIII— Agency 227 

Chapter XXIV— Partnership 253 

Chapter XXV— Corporations 273 

Chapter XXVI— Bailment 301 

Chapter XXVII— Fire Insurance 330 

Chapter XXVIII — Life Insurance 343 

Chapter XXIX — Casualty Insurance 357 

Chapter XXX— Real Estate 362 

Chapter XXXI — Real Estate Conveyances 380 

Chapter XXXII— Real Estate Mortgages 400 

Chapter XXXIII — Landlord and Tenant 412 

Chapter XXXIV— Wills 428 

Chapter XXXV — Guardians and Wards 443 



b CONTENTS 

Page 

Chapter XXXVI — Banks and Banking 448 

Chapter XXXVII— Law of Patents 486 

Chapter XXXVIII — Directions for Securing Copyrights 496 

Chapter XXXIX — Commercial Credits 507 

Chapter XL — Bankruptcy 525 

Glossary 534 

General Index 541 

Index to Forms 555 



CHAPTER I 

LAW IN GENERAL 

1. Law, when regarded in its broadest sense, is a 
rule of action. It offers no special reward or privilege 
to those who obey its commands, but in every case it 
stands ready with a penalty for each transgressor. 

2. Kinds of Law. — Law may be divided into four 
separate classes: Moral Laic, Natural Law, Interna- 
tional Law, and Municipal Laiv (mu-nis'-i-pal). 

3. Moral law has reference to that portion of the 
Old Testament which relates to moral principles, 
especially the ten commandments. Immanuel Kant, 
a great German philosopher, once said that two 
things before all others filled him with ceaseless awe 
— the starr^y heavens above, and the moral law 
within. 

4. Natural law has been defined as an unwritten 
law depending upon an instinct of the human race, 
universal conscience, and common sense. It may also 
be said to be the law which regulates the forces and 
processes of the material world. 

Examples. — The law of self-preservation, the law 
of gravitation, etc. To follow this branch of law into 
an exhaustive treatise would lead to a most subtle 4 



8 LAW IN GENERAL 

and abstruse discussion of metaphysics, and touch 
upon almost every department of human inquiry. 

5. International law is a system of rules recognized 
by civilized nations and intended to govern their 
intercourse with each other. It is founded on 
the principle that different nations ought to do to 
each other as much good in peace, and as little harm 
in war, as possible, without injury to their own in- 
terests. 

6. Municipal Law. — Municipal law consists of rules 
laid down by the state or nation to govern the con- 
duct of its members, the intention being to command 
that which is right and prohibit that which is wrong. 

7. Division of Municipal law. — In the United States 
the Municipal Law may be separated into three dis- 
tinct classes: Constitutional Law, Statute Laic, and 
Common Law. Let us look for a moment at our plan 
of government before taking up these divisions of 
municipal law. 

8. Constitution. — At the close of the Kevolutionary 
War the thirteen colonies were free. Although they 
were closely allied, each was an independent and sov- 
ereign nation; but, realizing that in unity there is 
strength, they decided to enter into an agreement or 
compact for the purpose of forming a central gov- 
ernment. 



LAW IN GENERAL 9 

After much discussion they adopted the Constitu- 
tion of the United States, or, as it is often called, the 
Federal Constitution. In this agreement each state 
surrendered to the central government some of its 
rights as a sovereign nation, while it retained others 
in its own hands. All the rights, powers, and privi- 
leges of the central government were carefully enu- 
merated, and this famous instrument at once became 
the fundamental, or organic law of the United States. 

Every student is urged to familiarize himself with 
the constitution of his country and to study the civil 
government of the United States, for no man can 
perform his highest duties as a citizen of this great 
Republic unless he understands the basic principles 
underlying it. 

9. State Government. — Every state in the Union has 
a constitution of its own, which stands as the funda- 
mental law of the state; but it, of course, must not 
conflict with the Federal Constitution. 

10. Constitutional Laws. — These laws are based upon 
the Constitution itself. This great document is our 
highest legal authority, the supreme law of the land. 
If the laws enacted by any state or by Congress are in 
conflict with the Constitution, they are declared by 
the courts to be unconstitutional and therefore null 
nnd void. 



10 LAW IN GENERAL 

11. Statute Law. — This has reference to the laws 
passed by Congress as well as those passed by the 
legislatures of the various states. 

They are of course all written and supposed to be 
prepared in a careful manner. The laws passed by 
Congress and signed by the president are binding in 
every state in the Union, while those passed by the 
legislatures of the several states and signed by the 
governors bind only the states enacting them. 

12. Common Law. — This is sometimes called the un- 
written law, as it is not expressed in statutes, but is 
based upon custom and common sense. It is said 
to have originated among the primitive Saxons in 
the heart of the forests of Germany. It has been in 
use in England from time immemorial, and was 
brought to this country by the colonists. 

It was the outgrowth of custom. Men transacted 
business in a particular way so long that it finally 
became a general rule, and by long use it was ulti- 
mately crystallized into law. 

The common law of England, modified consider- 
ably by our statutes, is in force throughout the 
United States, with the single exception of Louis- 
iana, which adopted the civil law instead. Much of 
the common law of England is unsuited to the con- 
ditions which exist in America, and some of it is ab- 



LAW IN GENERAL 11 

solutely repugnant to our ideas of government and 
personal liberty. Such of these laws as have been 
quite generally annulled by the statutes of the various 
states will be given but little attention in this volume, 
as it is assumed the reader is more interested in what 
the law now is than what it was in years gone by. 

13. Commercial law is that branch of the law which 
regulates commercial or business transactions. It 
derives its force, to some extent, from statutory en- 
actments, but a far larger part from long established 
customs of merchants which have been sanctioned 
and confirmed by the courts. It is the outgrowth of 
what is known as the "Law Merchant," which con- 
sisted of the various usages and customs of the Lon- 
don merchants, and is better understood when re- 
ferred to as the Law of Merchants or laws governing 
mercantile transactions. 

Commercial law now embraces much more than 
the old "Law Merchant," for that dealt more espe- 
cially with marine affairs and bills of exchange. 



12 LAW IN GENERAL 

LAW 

REVIEW QUESTIONS 

What is law? 

Name four kinds of law. 

Define moral law. 

Define natural law. 

Define international law. 

Define municipal law. 

Into what three classes is municipal law divided? 

What is constitutional law? 

What is statute law? 

Define common law. 

Define commercial law. 

Define "Law Merchant." 



CONTRACTS 13 



. CHAPTER II 

CONTRACTS 

14. Definition.- — A contract is an agreement between 
two or more competent parties, based upon an ade- 
quate consideration to do or not to do some particular 
thing. The parties must be competent in the eyes of 
the law to make a contract and the thing to be done 
must be lawful, otherwise the contract can not be 
enforced. 

15. Essential Elements. — Every valid contract has 
the following essential elements : 

1. Parties, 

2. Consideration. 

3. Subject Matter. 

4. Mutual Consent. 

5. Time. 

These are called the essential elements because no 
contract is valid without all of them. 

Leave out one of them and you have no contract. It 
makes no difference whether the contract is large or 
small, whether you are buying a postage stamp or con- 
tracting for a ten thousand dollar house, the principle 
is the same. 

16. Parties. — An old adage says, "It takes two to 



14 CONTRACTS 

make a bargain." This of course is true, and, while 
there is no limit to the number that may enter into a 
contract, there must at least be two parties or no con- 
tract can exist. 

17. Conditions of Competency. — To be competent to 
make a binding contract the individual must be of 
legal age and sound mind, and in the case of a corpora- 
tion it must be organized according to law and acting 
within the limit of its authority. 

18. Legal Age. — Under the common law all persons 
are regarded as infants until they reach the age of 
twenty-one, but in most of the states by operation of 
the local statutes females become of age at eighteen 1 
and in a few states they become of age at marriage 
even though they are under eighteen. 2 

A person becomes of age at the beginning of the day 
before his twenty-first birthday; therefore a person 
born August 10, 1887, would become of age at the very 
beginning of the 9th day of August, 1908, and he is 
competent to make binding contracts at any time dur- 
ing the day. 

19. Incompetent Persons. — The law regards individ- 
uals belonmncr to certain classes as incapable of mak- 



lAlabama. Arkansas. Colorado, Connecticut, Delaware, Georgia, Illinois, In- 
diana, Iowa, Michigan, Minnesota, Montana, Missouri, Maine. Maryland, New 
Jersey, New York, New Hampshire, Nevada, Ohio, Oklahoma, Oregon. Rhode 
Island, South Carolina, North Carolina, Texas, Utah, Vermont, Wyoming, Wis- 

D 2 Iowa, Oregon, Washington, and Nebraska. In Nebraska they become of age 
at marriage provided they are sixteen or over. 



CONTRACTS 15 

ing binding contracts. The names of the classes are 
as follows : 

{I. Minors. 
2. Married women. 
3. Alien enemies. 

{1. Lunatics. 
2. Idiots. 
3. Habitual drunkards. 

20. Minority. — A minor is a person who has not 
reached his majority or become of age, and on account 
of his youth and inexperience the law grants him 
more protection and security than is given to an adult. 

21. Not Void, but Voidable. — The contracts of a minor 
are not void as is commonly supposed, but only void- 
able at his option. That is, if a party of full age makes 
a contract with a minor, he can not hold the minor to 
the agreement, but the minor may hold him. If the 
contract was absolutely void, neither party would be 
bound by it. 

22. A Minor's Contract for Necessaries. — The general 
rule is that a minor can not make a contract that will 
be binding upon himself, and yet there is one very im- 
portant exception to this rule. The contracts he 
makes for necessaries are valid, and he will be held 
for the payment of such obligations just the same as 



16 CONTRACTS 

if he were of full age; but no exorbitant price can be 
collected; it must be the regular or customary price. 

It is sometimes rather a difficult matter to distin- 
guish between a necessity and a luxury; but neces- 
saries are usually understood to mean board, clothing, 
medical treatment, schooling, and such other things 
as are in keeping with the station and means of the 
minor. 

It is well to remember that what the law might re- 
gard as a necessity for one person might be a luxury 
for another. Furthermore, necessaries have only to do 
with the person of the minor, and not with his estate, 
and he can not bind himself for repairs on his prop- 
erty even though without them it would fall into 
decay. 

23. A minor may ratify or repudiate his contracts 
when he becomes of age, but he should do so within a 
reasonable time after reaching his majority; otherwise 
his silence may be taken as giving his consent to the 
contract. Some courts have held, however, that he 
does not need to either ratify or disaffirm the contract 
until the other party seeks to enforce it ; and in a few 
states the ratification is not recognized by the law un- 
less it is made in writing. 

The privilege which the law gives the minor of re- 
pudiating his contract can not be waived or set aside 



CONTRACTS 17 

by him in any possible form of agreement which is 
made before he reaches his majority. 

24. Emancipation of a Minor. — A minor may, as a 
rule, hold property as well as an adult ; but, so long as 
an infant remains with his parents, his earnings or 
wages will belong to the father, who can generally en- 
force the collection of same, even though the amount 
has already been paid to the child. 

If a father emancipates his child, that is, gives him 
his time and earnings, the above rule is reversed, and 
the child has a perfect right to his own wages, but the 
parent is no longer liable for his support, unless the 
infant becomes unable. to support himself. 

Emancipation may be accomplished by verbal agree- 
ment, by a written statement, or it may be implied in 
case the father turns a minor child out to make his 
own way in the world. It should be remembered that 
the fact of emancipation does not increase an infant's 
capacity to make binding contracts. 

25. ilust Return the Property if Possible. — If an infant 
decides to avoid his contract, he must return or offer- 
to return the thing he received in the transaction. 
Thus he can not repudiate his promise to pay for prop- 
erty and still retain the same; but if a minor has used, 
lost, or destroyed the property so that it can not be re- 



18 CONTRACTS 

turned, he may disaffirm the agreement and refuse to 
pay the amount due. 

26. "Pleading the Baby Act." — This may not be very 
graceful language, but it is an expression used to 
describe the case of a person who, being sued on a con- 
tract, sets up the defense that when he made the con- 
tract he was under age; therefore he was not re- 
sponsible for his act. 

This is regarded as very dishonorable, and for that 
reason is seldom resorted to. If a person feels that he 
has been wronged or defrauded in any contract made 
during minority, he has a perfect right to refuse to 
carry it out, and to demand justice in the courts, but, 
as a rule, few people are willing to face the odium 
which attaches to "pleading the baby act." 

27. Wrong Doing of an Infant. — While the law places 
about the infant its protecting arms, it will not permi t 
him to commit a crime or do a wrongful act. If he 
breaks the law he is as liable to punishment as though 
he were of full age. For example, if an infant fraudu- 
lently represents himself to be of age when he is not 
and thereby induces some one to make a contract with 
him, he is liable in an action for fraud, although the 
contract itself may be avoided by him. Again, if a 
minor commits an assault upon anyone or is guilty of 



CONTRACTS 19 

any breach of the law, he is liable to fine and imprison- 
ment the same as if he were of full age. 

28. Contracts of Married Women. — Under the common 
law a married woman is incapable of making a con- 
tract of any kind. A widow or unmarried woman of 
full age is perfectly competent, but the interests and 
legal existence of a married woman are supposed to be 
so completely merged into the interests of her husband 
that she has but few if any legal rights left to her. 

The title of all her personal property passes abso- 
lutely to her husband at the time of her marriage, and 
he at the same time becomes responsible for her debts 
contracted before marriage. This law, however, is so 
un-American, and so foreign to our ideas of justice, 
that nearly all the states have enacted statutes giving 
a married woman the right to retain her property in 
her own name and to do with it what she desires. 

We give below a brief abstract of the law as found 
on the statutes of a few of the western states. 

28. Nebraska. — The law of Nebraska gives to a married woman 
full control of all her real estate as well as her personal prop- 
erty. This includes all property acquired by her before and 
after marriage, except such as she has received from her hus- 
band by gift. She may sell, rent, or make any contract rel- 
ative to her property in the same manner as if she were single. 
Neither husband nor wife is liable for the private debts of the 
other. If the homestead is sold or mortgaged the instrument 
must be signed by both husband and wife, and the same is also 
true as to the household goods used by the family. 



20 CONTRACTS 

When signing as surety or guarantor, a married woman does 
not bind her own individual property unless it can be estab- 
lished that she intended when signing the instrument to bind 
her separate estate. It is safest in all cases when a married 
woman signs a note or contract to insert the following words: 
"This contract is given on the faith and credit, and with reference 
to my separate estate." 

Women become of age at sixteen if married, or otherwise at 
eighteen. The widow is entitled to the use during her life-time 
of one-third of her husband's real estate, and if the husband 
makes a will she may take her choice between the will and one- 
third of lands. 

30. Kansas. — In Kansas all property, both real and personal, 
acquired by the wife either before or after marriage is her separ- 
ate property and not liable for the husband's debts. She may 
buy and sell, sue and be sued as if she were single. She can not 
bequeath more than one-half of her property away from her 
husband without his written consent. If either dies intestate 
and without children, all his or her property goes to the sur- 
vivor. If a husband deprives his wife by will of more than one- 
half of his property she may take her choice between the will 
and one-half of his property. Dower and courtesy are abolished. 
Women attain their majority at eighteen. Wife must join in all- 
mortgages except those given for purchase money. 

31. Colorado. — All property coming to the wife before or after 
marriage, including gifts from her husband, remains her sole 
property. She can not bequeath more than one-half of her 
property away from her husband without his written consent, 
and the husband can not, by will, deprive his wife of more than 
one-half of his property. The husband is liable for his wife's 
debts contracted before marriage to the extent of the property 
he has received through her, but no further. Dowery is abol- 
ished. Wife may sue and be sued. Women are of age at twenty- 
one. Expenses of the family and education of the children may 
be charged to either husband or wife or both. 

32. South Dakota. — The wife has entire control of all her 
property and may sell, convey, and devise the same as freely as 
though unmarried. Neither husband nor wife are responsible for 
the debts or acts of the other. Dower and courtesy are abolished. 
Women become of age at eigheen. 



CONTRACTS 21 

33. Iowa. — In Iowa all property owned by a married woman 
is under her full control. She may sell, mortgage, rent, or will 
the same without interference from her husband. Neither is 
responsible for the debts of the other. Family expenses, educa- 
tion of children, etc., are chargeable to either or both, and they 
may be jointly or severally sued. Dower and courtesy are abol- 
ished. In case of death of either husband or wife the survivor 
receives one-third in vaiue of all real estate owned by the 
other. 

34. riontana. — Wife's contracts in respect to her separate 
labor or services are not binding upon her husband. She shall 
not, by will, deprive her husband of more than two-thirds of her 
real or personal property. All property acquired by the wife be- 
fore or after marriage is entirely under her control. Husband is 
not liable for debts contracted by wife before marriage. Mort- 
gage given by husband is good even when not signed by wife. 
Wife is entitled to a dower consisting of one-third of her hus- 
band's real estate. 

35. North Dakota. — A married woman may own and manage 
her property the same as if she were unmarried. The husband 
must support his wife out of his property or by his labor, but if 
he has no property and on account of infirmity can not support 
himself, when the wife shall support him out of her property. 
Husband is not liable for debts of wife contracted before mar- 
riage. 

36. Wyoming. — Husband is not liable for any antenuptial debts 
of wife unless he assumes such debts in writing. Wife may make 
a will, own and control real and personal property the same as if 
she were unmarried. Her property can not be held for the pay- 
ment of her husband's debts. 

37. Alien Enemies. — An alien is a foreigner, that is, 
one born in, or belonging to another country, who has 
not been naturalized. 

When two nations are at war, the subjects of each 
country are alien enemies to the subjects of the other. 
War puts an end at once to all business dealings and 
all communications. The policy is to keep the citizens 



22 CONTRACTS 

of each nation attached to their own country, and the 
law says that all contracts between alien enemies are 
absolutely void on the ground that an enemy would 
otherwise be able to withdraw the resources from the 
country for the benefit of the opposing nation. 

38. Naturalization is the process of conferring upon 
foreigners the rights of citizenship. Any foreigner 
may become naturalized in five years from the time he 
arrives in this country, provided he takes out his first 
papers during the first three years he is here. 

Two years must in every case lapse between the time 
he takes out his first and his final papers. He is re- 
quired to renounce forever his allegiance to all for- 
eign countries, and to make an oath of affirmation 
that he will support the Constitution of the United 
States. If he has any title of nobility he must also 
renounce that. 

Foreigners who have served one year in the United 
States army and been honorably discharged from the 
same may become citizens by taking the required oath. 

Children born in foreign lands of parents who are 
citizens of the United States are also citizens of this 
country. When a man secures his final papers of 
naturalization, this act makes him a citizen and also 



CONTRACTS 23 

makes citizens of all his children who are under twen- 
ty-one years of age. 3 

39. Lunacy. —A lunatic is an insane person or one 
who has lost the power of reason. Some are entirely 
devoid of reason, while others have lucid intervals 
during which time they are perfectly rational. If con- 
tracts are made during these lucid intervals they are 
valid and binding. 

Some people are insane upon certain questions only, 
while they are intelligent on all others, and it has been 
held that they are competent to contract as to all sub- 
jects on which they are entirely sane. 

Lunacy must be established by good evidence before 
a contract can be avoided on that ground. 

The same rule that governs the contracts of minors 
for necessaries also applies to lunatics. 

40. Idiocy. — An idiot is a person who is born without 
reason or mental capacity, and for his own protection 
the law will not enforce any contracts he may make 
unless it be for necessaries. 

The idiot differs from the lunatic in this : the idiot 
is born without reason, while the lunatic has a sound 
mind at birth but loses it afterward. 



3 Foreigners who are of legal age are allowed to vote in Nebraska and some 
other states provided they take out their first papers, thereby declaring their in- 
tention of becoming citizens, at least thirty days before election. All others in 
Nebraska must reside in the state six months, county forty days, precinct, town- 
ship, or ward ten days before they can vote. 



24 CONTRACTS 

41. Intoxication. — A person who is so completely in- 
toxicated as to be devoid of reason is incapable of 
making a binding contract except for necessaries. 

One of the essential elements of a contract is con- 
sent, and a drunken person is no more capable of giv- 
ing intelligent consent than is an idiot or insane 
person. Partial intoxication will not enable one to 
avoid his contracts; yet if there are any evidences of 
fraud or imposition it would be hard to enforce an 
agreement made under such circumstances. 

42. Responsible for Crimes. — The law is very consid- 
erate of the weaknesses of mankind and will not en- 
force the contracts of a drunkard even though the in- 
toxication is brought on voluntarily; but if he com- 
mits a crime, he must suffer the penalty. To set aside 
a contract is an easy matter and no one is seriously 
harmed, but a crime when once committed can never 
be undone, and the interests of society demand that 
the person who voluntarily drowns his reason by in- 
toxication shall pay the penalty for all his misdeeds. 
While intoxication is no defense to a criminal prose- 
cution, it sometimes has the effect of reducing the 
class of the particular offense. 

43. Duress is another condition of incompetency to 
make a binding contract. It is defined as fear of per- 
sonal injury or imprisonment. 



CONTRACTS 25 

For example, a man may be illegally held a prisoner 
until he agrees to pay a large sum of money. The con- 
tract would be void as he did not give his voluntary 
consent y and that is necessary to every valid contract. 

Again, a man may be threatened with death or se- 
vere torture unless he will sign a deed to all his prop- 
erty. If it can be proved that he gave the deed through 
fear of personal injury it will be declared void and be 
set aside by the courts. It should be remembered that 
this does not apply to contracts made while one is 
lawfully imprisoned; for such contracts are binding. 



26 CONTRACTS 

CONTRACTS 

REVIEW QUESTIONS 

Define a contract. 

Name the essential elements of a contract. 

Who may make binding contracts? 

What is meant by legal age? 

Name the classes of people who are incapable of 
making contracts. 

Are the contracts of infants void or voidable? 

Are any contracts of infants binding? 

May an infant ratify his contract on becoming of 
age? 

What is "pleading the baby act" ? 

What is meant by emancipation of a minor? 

Are infants responsible for torts? 

Are contracts by married women binding? 

Who is an alien? Who is an alien enemy? 

What is meant by naturalization? 

How is it accomplished? 

Who is a lunatic? 

Who is an idiot? 

To what extent is drunkenness a disability? 

Is an intoxicated person held responsible for a 
crime? 

What is duress? Is legal imprisonment duress? 



CONSIDERATION 27 

CHAPTER III 

CONSIDERATION 

44. Definition. — The consideration in any contract 
is the cause that moves the party to enter into it. 
You contract to sell a horse for flOO cash. The 
consideration to you is the money. You trade an- 
other horse for a new carriage. The consideration 
this time is the carriage. You are rescued by a stranger 
while in great danger of your life, and you show your 
appreciation by making him a present of a nice horse. 
The consideration to you in this case is gratitude. 
You give your mother a nice horse and carriage as a 
present. The consideration is love. 

Every contract must have a consideration; other- 
wise it will be void, but it will be seen that the consid- 
eration does not necessarily consist of a transfer of 
money. 

45. An expressed consideration is one that is clearly 
stated in the contract. 

46. An implied consideration is one that is not stated 
but which the law presumes to exist. For example, a 
promissory note does not usually state the purpose 
for which the note was given, but the law presumes 
that there was some value received for same. 



28 CONSIDERATION 

Legal consideration may be divided into two classes 
as follows : 

1. Good. 

f Benefit to promisor. 

2. Valuable J Loss or inconvenience to promisee. 

I Mutual promise. 

47. A good consideration is founded upon love, grati- 
tude*, or affection. A consideration of this kind will 
not uphold an executory contract, that is, one to be 
performed some time in the future ; neither will it sup- 
port a contract the object of which is to defraud cred- 
itors or hinder them in collecting their dues; but it 
will support a contract that has already been finished, 
called an executed contract. 

Mr. B says to his son, "I have now accumulated 
considerable money and to-morrow I will give you 
f 1,000, to be used as you see fit." This is a promise of 
something to be done in the future based upon love 
as the consideration, and the father can not be com- 
pelled to keep his promise. 

Had he given his son the money instead of promis- 
ing to do so at some future time, the contract would 
have been completed when the son accepted the money, 
and it would have been binding, as a consideration 
based upon love Avill uphold an executed contract. 
AVhen some third person would be defrauded bv 



CONSIDERATION 29 

giving away property, the gift will not stand in law, 
even though it has already been accepted. A father 
might deed all his property to his son, just to avoid 
paying his debts. In that case the creditors could 
have the deed set aside, as the law will not protect 
any one in a fraudulent act. 

48. A valuable consideration is something which is 
(1) a benefit to the person making the promise, (2) 
something that is a loss or inconvenience to the one to 
whom the promise is made, or (3) a mutual promise. 

49. The benefit may be anything of value, as the de- 
livery of money or goods, or performing some service, 
or, in fact, anything that is a benefit to the promisor. 

50. Loss or Inconvenience. — If the contract is made 
in good faith it matters not how insignificant the loss 
or how small the inconvenience, it will be binding. 

If I promise to pay you flOO to-morrow morning 
you can not compel me to keep the agreement, but if 
I promise to pay you that amount if you will call at 
my office at nine o'clock you can hold me to the con- 
tract, because something is required of you which is 
an inconvenience. 

A legal maxim says "The slightest consideration 
will support the greatest undertaking." 

51. Mutual promises are sufficient to support each 
other, but they must both be made at the same time. A 



30 CONSIDERATION 

good illustration of this is a mutual promise of mar- 
riage, which is of course binding on both parties. A. 
promise to accept and pay for a copy of Webster's 
Dictionary is sufficient consideration for a promise 
to sell and deliver same. 

52. Other Sufficient Considerations. — There are other 
considerations which are sufficient to support con- 
tracts, but it is not thought necessary to discuss them 
here for the reason that they seldom occur in ordinary 
business transactions, but we mention a few of them : 

Forbearance to institute suit at law, offering re- 
wards, trust and confidence reposed in another, con- 
siderations coming from a third person. These and 
others are all fully" discussed in Kent, vol. 2, p. 463. 

53. Insufficient consideration may be separated into 
the following divisions : 

1. Gratuitous. 

2. Impossible. 

3. Moral. 

4. Executed. 

5. Illegal. 

54. Gratuitous Consideration. — A contract based upou 
a consideration that is wholly gratuitous is void un- 
less the contract is executed at the time it is made, as 
gratitude will not support an agreement to be per- 
formed in the future. 



CONSIDERATION 31 

A father gives his son a promissory note of f 100, 
payable in six months. This contract is void as be- 
tween these parties, and the collection of the note can 
not be enforced. 

Subscriptions to a church or charity are as a rule 
also void if purely gratuitous, and can not be col- 
lected unless such institution incurred some expense, 
debt, liability, or obligation, relying on the subscrip- 
tion as a means of paying it or part of it. Some 
courts, however, have held that such subscriptions 
are binding when several different persons have 
signed the list, the theory being that the promise of 
each subscriber is the consideration for the promise 
of the others. 

You can not collect pay for services you have 
rendered gratuitously; such as voluntary assistance 
in saving property from fire, working for a man with- 
out his knowledge or consent, payment of another's 
debts without his consent or request, etc. An excep- 
tion to this rule is in case of salvage, where a person 
is allowed pay for the actual services rendered while 
saving goods from a wreck at sea or from pirates. 

This doctrine must not become confused Avith the 
obligation of every person to pay for work when per- 
formed for him with his implied consent. If you go 
into my field and begin work, even without my re- 



32 CONSIDERATION 

quest, the law raises an implied promise on my part 
to pay you what your services are worth, provided T 
know you are working and do not interfere or request 
you to quit. 

55. Impossible Consideration. — The law will not rec- 
ognize contracts in which either party promises to do 
something that is well known to be impossible. Such 
contracts are void. No one can evade a contract 
simply because it is very difficult, but it must be ab- 
solutely impossible and beyond the range of human 
ability. 

56. Moral Consideration. — A moral obligation is not 
sufficient to support a contract, and many things that 
a person of strict morals would feel himself bound to 
do could not be enforced by law. As an illustration, 
let us suppose a young man twenty-one years of age, 
being away from home, meets with a bad accident. 
He is given the best of care at a hospital, and through 
skillful attention his life is saved. His father after- 
wards writes to the hospital that he will pay the bill. 
This promise is not binding, yet the father would feel 
a moral obligation to pay it. 

57. Executed Consideration. — An executed consider- 
ation will not usually support a contract. Example.— 
You buy goods at a store and pay for same. After- 
wards the merchant tells you he warrants the goods 



CONSIDERATION 33 

to be of special kind and quality. This warranty is 
void because it was no part of your contract with him 
You have already paid for the goods, but paid nothing 
for the warranty. If he had said before the sale that 
he warranted them to be of special kind and quality, 
it would have been binding, for then you pay the 
price, not for the goods alone, but for the warranted 
goods. 

58. Illegal Consideration. — A promise to do some- 
thing which is illegal is not sanctioned by the law. 
Should the law uphold a contract of this kind it would 
be using its own strength against itself. Thus an agree- 
ment to smuggle goods into this country without pay- 
ing duty or to commit a crime would be void, and pay- 
ment for such work could not be enforced in the courts 
of justice. 

59. Failure of Consideration. — Where the considera- 
tion which was thought at the time of the contract to 
be good, turns out to have been worthless, the contract 
is void, and if money has been paid on it the same may 
be recovered, also if there is a partial failure of con- 
sideration, the injured party is entitled to relief. 

A sells to B one thousand head of sheep located in 
Colorado, but it is afterwards learned that the sheep 
had all perished in a storm the day before the sale 
was made. In this case there is a complete failure of 

3 



34 CONSIDERATION 

consideration, and the buyer of the sheep is entitled 
to have his money returned. In every case when the 
thing sold is dead or destroyed at the time of sale, 
and this fact is unknown to the parties, the contract 
becomes null and void for want of consideration. 

The same may be said of any sale where the seller 
does not possess a good title to the article sold. 



CONSIDERATION 

REVIEW QUESTIONS 

Define consideration. 

Distinguish between expressed and implied consid- 
eration. 

What is a good consideration? 

What kind of contracts will it support? 

What is a valuable consideration? 

Will mutual promises support a contract? 

What is an insufficient consideration? 

Define gratuitous consideration. 

Define impossible consideration. 

Define moral consideration. 

Define executed consideration. 

Define illegal consideration. 

What is meant by failure of consideration? 

What effect does partial failure of consideration 
have on the contract? 



SUBJECT MATTER 35 



CHAPTER IV 

SUBJECT MATTER 

60. Definition. — The subject matter of a contract is 
the thing agreed upon to be done or not to be done. 

61. What it May Be.: — It is impossible to name all 
the things that may be made the subject matter of a 
contract, for within certain reasonable limitations 
parties are at liberty to make contracts to do anything 
they please. 

It is much easier to classify and discuss those things 
which the law prohibits rather than those which it al- 
lows. It is a settled policy of the law, however, that 
no contract will be recognized in the courts that is 
not based upon a lawful act. 

62. What it flust Not Be.- — Nothing can be the sub- 
ject matter of any valid contract which is (1) illegal, 
(2) immoral, (3) impolitic, (4) fraudulent. 

63. Illegal Subject Matter. — When the subject mat- 
ter of a contract is anything against the laws of our 
country, it is absolutely void. The court will not lend 
its strong arm to enforce a contract that is made in 
violation of the law. 

Thus a contract by which a man is to receive f 500 
for engraving and printing counterfeit money is en- 



36 SUBJECT MATTER 

tirely void, and lie can collect nothing even though he 
performs his part of the agreement. The same may 
be said of a contract to do anything that is contrary 
to the common or statute law. 

64. Immoral Subject Matter. — No contract, the sub- 
ject matter of which is immoral, has any standing in 
law. A contract for the publication, sale, or distribu- 
tion of obscene literature is therefore void. All bets 
and wagers are void under the common law, and in 
some of the states money may be recovered which has 
been lost in this way. 4 The United States government 
will not allow any lottery to use the mails, nor will it 
allow any newspaper to be sent through the mails if it 
contains an advertisement or announcement of any 
lottery. Most of the states have enacted laws against 
Sunday desecration, and in some cases they have de- 
clared all contracts made on Sunday to be null and 
void. 

65. Nebraska statute on Sabbath breaking says any 
person fourteen years of age or upwards found guilty 
of sporting, rioting, quarreling, hunting, fishing, or 
shooting shall be fined }20 or sent to the jail not ex- 



4 Nebraska statutes make betting on any game or gambling device an offense 
punishable by a fine of not less than $100 or more than $'M\ or imprisonment in 
the penitentiary not more than one year. Money lost in gambling may be recov- 
ered by the loser, his wife, legal representative, or his creditor. Any one enticing 
minors to gamble will be fined not less than $5'), or imprisoned not less than one 
month. Proprietors of billiard rooms are liable to a fine of $2") if they allow a 
minor under eighteen years to remain np>n their premises. Betting on election 
is finable in sums of $"> to $100, the fine being the same amount as the wager. Pro- 
moters of lottery enterprises of any description are finable in the sum of $5J0. 



SUBJECT MATTEB 37 

ceeding twenty days, or both. If any person of the 
age of fourteen years or over shall be found at com- 
mon labor (work of necessity and charity only ex- 
cepted) he or she shall be fined from fl to $5. 

This does not apply to those who conscientiously 
keep the seventh day of the week as the Sabbath, nor 
does it prevent emigrants from traveling, nor apply 
to railroads, watermen, keepers of toll gates or 
bridges, ferrymen, or persons moving their families 
on such days. 

Contracts entered into on Sunday in Nebraska are 
not void. 

66. Impolitic. — When a contract is against the pub- 
lic good or at variance with the established policy of 
the government it is said to be impolitic, and is there- 
fore void. 

They will be briefly discussed under the three fol- 
lowing heads: 

1. Contracts in restraint of trade. 

2. Contracts in restraint of marriage. 

3. Contracts which obstruct public justice. 

67. General Restraint of Trade. — The law looks with 
disfavor upon any contract that has a tendency to re- 
strain trade. It is thought to be for the public good 
that every man be allowed to follow his own lawful 
business or profession, and even though a contract in 



38 SUBJECT MATTER 

violation of this principle be supported by a valuable 
consideration the law will not enforce it. 

A partial restraint of trade is often sustained by 
the courts, but such restraint must be reasonable both 
in time and place. You buy a drug store and the good 
will of the business from Mr. A, and he agrees that 
he will never enter into the drug business again any 
place. This contract is void, as it is in total restraint 
of trade, and he may open a drug store next to you 
within a week, and you can not stop him. If he had 
agreed to not enter into the drug business in your 
city for a period of, say, five years, that would have 
been regarded as a reasonable restraint, and the con- 
tract could have been enforced. In deciding whether 
or not the restraint is reasonable, one must take into 
consideration all the circumstances surrounding the 
particular case. 

"Trusts/ 7 "combines," "corners/' etc., are all in re- 
straint of trade, and while they are only a partial re- 
straint they are regarded as unlawful and against the 
public welfare. 

68. General Restraint of riarriage. — As some one lias 
well said, the law makes marriage an easy contract to 
enter into, but a hard one to break. 

The policy of the law is to encourage entire freedom 
of choice in marriage, and any contract which place- 



SUBJECT MATTER 39 

one under restraint or abridges one's freedom in this 
matter is regarded as against the best interests of 
society, and therefore void. 

'In certain cases, however, a limited or reasonable 
restraint will be recognized as just and legal. For ex- 
ample, a father leaves property to his children by will, 
on condition that they do not marry before the age 
of twenty-one. This would be not only reasonable, but 
would prove a protection against the possible errors 
of an early marriage. 

On the other hand, if the will provided that the 
children should never marry or should not marry be- 
fore the age of fifty, it would be entirely void as to 
that point. 

A condition in a will that a child is not to marry a 
particular person, or shall not marry against the con- 
sent of certain friends, has been held as valid. 

A man may, if he wishes, leave a bequest to his wife 
on condition that she remain a widow, and this will 
not be regarded as an unreasonable restraint. The 
law seems to be satisfied with one marriage for each 
person. 

Contracts to negotiate marriage for a consideration 
are utterly void, and money paid for such purpose 
may be recovered. 

69. Obstructing Public Justice. — Courts are estab 



40 SUBJECT MATTER 

lished that justice may be administered to all men, 
and any contract that tends to defeat this purpose is 
null and void. Any bargain to "pack," "bribe/' or 
otherwise influence the decision of a jury, or to sup- 
press certain evidence in a criminal trial, can not be 
enforced. 

The same may be said of using undue influence on 
the members of any legislative body. 

70. Fraudulent. — The law will not countenance any 
transaction that is tinged in the slightest degree with 
fraud, and whenever fraud enters into any contract it 
vitiates the entire agreement. 

Parties contracting may perpetrate a fraud, (1) 
on each other, (2) on a third party. 

71. Fraud on Each Other. — Whenever one party in- 
duces another to enter a contract by means of fraud, 
the contract is voidable at the option of the injured 
party, but when both parties are guilty of fraud the 
law will leave them where it finds them, that is, 
neither can enforce the agreement against the other. 
A buys goods from B and gives in payment a worthless 
note which he represents as good. B also commits i 
fraud by selling damaged goods, while he represents 
them to be in perfect condition. In this case neither 
one can compel the other to fulfil the contract, and 



SUBJECT MATTER 41 

neither can recover anything from the other in set- 
tlement. 

72. Fraud on Third Party. — Any agreement between 
two persons that operates as a fraud on a third party 
is void. 

Perhaps the most numerous of this class are fraud- 
ulent assignments, wherein the debtor, finding himself 
on the verge of bankruptcy, assigns all his goods and 
property to some of his friends without consideration, 
thereby hoping to defraud his creditors. 

Such contracts are wholly void under the common 
law and also by the statutes of most of the states. 

Even though the debtor received full value for the 
goods from his friend, the sale may be set aside if it 
can be proved that the friend acted with intent to de- 
fraud the creditors. 

Another class of fraud on third parties is fraudu- 
lent sale. In this case the property is sold; but the 
seller retains possession. This is held to be a fraud on 
all creditors, who, knowing nothing of the sale and 
seeing the property still in the debtor's hands and be- 
lieving it to be his, give him a much greater credit 
than he deserves. 

The secjet use of by-bidders at an auction sale is 
also a species of fraud, the object being to run up the 
prices by fictitious bids, there being a secret under- 



42 MUTUAL ASSENT 

standing that the by-bidder is not to be held to his bids. 
If any purchaser has been misled by thinking these 
by-bidders were genuine buyers, he may avoid the 
contract. 

73. Enjoined by Law. — A contract to do or not to do 
something enjoined or commanded by law is void, as 
there is no consideration. An agreement to do any- 
thing which you are already required by law to do 
does not increase the obligation. 

A father promises his son that he will give him 
$1,000 the day that he is twenty-one years of age on 
condition that he faithfully obeys the law of the 
state relative to Sunday desecration. The father can 
not be compelled to pay this money even though the 
son keeps his part of the contract in good faith, for the 
law insists that every one shall refrain from Sabbath 
desecration, and to make a contract to do so adds 
nothing to the obligation. 

74. nutual Assent. — Mutual assent or consent is de- 
fined as the meeting of minds, that is, all parties to the 
contract agreeing to the same thing at the same time. 
This is one of the essentials of a contract, and where 
there is no agreement between the parties or no meet- 
ing of minds there can be no contract. 

Mutual assent may be separated into two parts : (1) 
a proposition, (2) its acceptance. 



MUTUAL ASSENT 43 

75. A Proposition. — In entering upon any contract 
the first step is to make a proposition. This is simply 
an offer and has no binding force unless it be accepted 
by the other party. 

You go to a furniture store to buy an easy chair ; the 
dealer shows you one and says the price is $15. This 
is a proposition. You like the chair, but think the 
price too high, so you offer him $13. This is another 
proposition, but there is thus far no bargain or mutual 
agreement. All that is needed is an acceptance to 
either of the propositions. 

76. Acceptance. — This simply means giving assent 
to the proposition. In the example given in the para- 
graph above, if the dealer accepts your offer of $13 you 
both agree on the same price at the same time, and the 
contract is complete. But suppose he does not take 
your offer, and later in the day you pass by his store 
and he calls you in saying he has decided to accept 
your price and sell you the chair for $13. You are not 
bound to take it, because an offer must be accepted at 
once, otherwise it may be withdrawn. 

Whenever one person makes an offer and the other 
agrees to the terms there is a contract, and it makes 
no difference whether it is done by word of mouth, by 
writing, by signs, by shaking hands, by a wink of the 
eye, or by silence. 



44 MUTUAL ASSENT 

77. Time Limit. — A offers to sell a horse to B for 
$150, saying lie will give him two days in which to 
think it over and accept. If B accepts within the two 
days the contract is completed, but A has the liberty 
of changing his mind and withdrawing the offer at 
any time within the tAvo days provided B has not al- 
ready accepted. 

78. Option.— You offer to sell C your farm for $5, 
1)00 and he says he will give you $20 for an option of 
ten days, that is, ten days' time to think it over, and 
decide. If you accept the $20 you can not then with- 
draw your offer during the ten days. 

79. Written Acceptance — A piano company in Chi- 
cago writes you quoting a price on a piano and you re- 
ceive the letter Monday. Tuesday you answer the let- 
ter, accepting the offer, and the contract is completed 
when you mail your acceptance. You receive a letter 
or telegram from the company one-half hour later say- 
ing they have withdrawn their offer, but it is too late ; 
you have already mailed your acceptance. 

Any offer made by mail is supposed to hold good 
until the person to whom it is addressed receives 
same and has a reasonable time to answer. 

Of course a second letter or telegram may be sent 
withdrawing the offer, but they must reach the party 
before he has mailed his acceptance. 



TIME 45 

80. Mistakes. — The law intends to deal justly with 
all men, and in cases of a mutual mistake relative to 
the facts in any contract either party may insist on 
having the error corrected or the contract set aside. 

Mr. A goes to Mr. B, a jeweler, to buy a solid gold 
watch. He sees what he supposes is one and buys it. 
Later he learns that it is only a plated watch, but he 
can not return it, for B did not sell it to him as solid 
gold. 

This was not a mutual mistake. But suppose A had 
asked for a solid gold watch and B understood him to 
say gold plated watch. Then if he buys the plated 
watch there is a mutual mistake, and the contract 
will not stand. 

81. Hust Not Be Conditional. — If the acceptance to a 
proposition is qualified or conditional, there is no con- 
tract. A writes to B offering to sell one thousand 
bushels of good wheat at a certain price. B answers 
that he will take it, but will expect it to be of first 
quality. This is no agreement, because B has added 
a condition in the acceptance which was not in the 
offer. 

82. Time. — This is the^last of the primary or essen- 
tial elements of a contract. The time is either ex- 
pressly stated or implied. In computing the time fixed 
for completing a contract, if the last day comes on 



46 TIME 

Sunday, the party has the next day in which to per- 
form it. This rule does not apply to negotiable pa- 
pers having days of grace, for if the last day of grace 
falls on Sunday the note is payable the day before. 

When no time is mentioned in which the contract 
is to be performed, the law implies that it is to be done 
in a reasonable time. Just what is meant by "rea- 
sonable time" must be determined by the conditions 
and circumstances surrounding the particular case. 
Negotiable paper is due on demand when no time of 
payment is mentioned. 



SUBJECT MATTER 

REVIEW QUESTIONS 

What is the subject matter of a contract? 
State what can not be subject matter of a contract. 
What is meant by impolitic subject matter? 
What is meant by illegal subject matter? 
What is meant by immoral subject matter? 
What is meant by fraudulent subject matter? 
What is meant by general restraint of trade? 
Is it lawful? 

What is meant by general restraint of marriage? 
Is it lawful? 

To what extent will the law allow restraint of trade 
or marriage? 



SUBJECT MATTER 47 

What is meant by obstructing public justice? 

Will the law countenance fraud in a contract? 

What is meant by a contract to do something which 
is enjoined by law? 

What is mutual assent? 

What is a proposition? 

How soon must a proposition be accepted? 

Must the acceptance be written? 

Ma} r the acceptance be conditional? 

W T hat is an option? 

If no time is mentioned in the contract, what is 
implied? 

If both parties to the contract are guilty of fraud, 
will the law assist either of them? 



48 KINDS OF CONTRACTS 



CHAPTER V. 

KINDS OF CONTRACTS 

83. Thus far we have discussed the Essential or Pri- 
mary Elements of contracts, but now we will con- 
sider some of the different kinds of contracts as well 
as a few of their peculiar features. 

With reference to the time of their performance 
contracts are divided into two classes : 

1. Executed. 

2. Executory (Eg-zek'-ii-to-ry). 

84. An executed contract is one that has already been 
performed. For example, you purchase a book, re- 
ceiving the same and paying the money ; or you trade 
your watch for a horse, making the exchange at the 
time of the trade. If any part of the agreement has 
not been performed it can not be called an executed 
contract. 

85. Executory Contract. — This refers to all contracts 
which are to be performed at some future time. 

A sells to B one hundred head of cattle, same to be 
delivered within thirty days, at which time the price 
agreed upon is to be paid. This is an executory con- 
tract because it has not yet been performed. If the 
cattle are not delivered, B will not have to pay the 



KINDS OF CONTRACTS 49 

money. After B delivers the cattle and A pays the 
money, then it will become an executed contract. So 
it will be noticed a contract may be executory one 
day and executed the next. 

86. As to Solemnity. — Contracts are divided as to 
solemnity as follows : 

1. Specialty (spesh'-al-ty), Always written. 

r Written^ Always expressed. 

2. Simple or Parol i ) Expressed or 

I I Implied. 

87. By Specialty . — When a contract is under seal it 
is said to be a contract by specialty, and at common 
law a specialty debt is giyen priority oyer simple con- 
tracts. 

Specialties do not require that the consideration be 
either expressed or proved.. In other words, after the 
contract has been signed and sealed, the law will up- 
hold it without regard to whether any consideration 
passed between the parties or not. 

The doctrine of estoppel (es-top'-el) applies to all 
specialties, that is, no one is allowed to deny with 
his lips what he has signed and placed under seal with 
his hand. While this is the common law, it should be 
remembered that it has been modified by the statutes 
of many of the states so that the consideration of even 
a sealed contract may be inquired into. 



50 KINDS OF CONTRACTS 

Specialty contracts and the use of private seals 
have been abolished by many of the western states. 5 
Others, 6 while still requiring them to be attached to 
the most important documents, such as deeds and 
mortgages, allow them to be made by a simple scroll 
with the pen ; and yet they are so often referred to that 
it is important for the student to have some knowledge 
of them. 

88. Seal. — A seal consists of an impression in wax or 
some tenacious substance. It is placed near the signa- 
ture and is supposed to be not only an evidence of the 
genuineness of the signature, but to also indicate a 
certain solemnity and deliberation in executing the in- 
strument. 

The student should bear in mind that the seal re- 
ferred to is that of the individual signers of the in- 
strument, and not the seal of the notary public. 

In the discharge of mortgage on the next page Carl 
M. Cook, the notary, uses his official seal to give au- 
thority to his own signature. But when in the instru- 
ment I. M. Porter says "Witness my hand and seal" 
he has reference only to the seal placed opposite his 
own name. 



6 Arizona, Alabama. California, Colorado, Indiana, Iowa, Kansas, Kentucky, 
Montana, Mississippi, Nebraska, North Dakota, Ohio, Oklahoma, South Dakota, 
Texas, Tennessee. 

6 Connecticut, Georgia, Illinois, Missouri, Maine, Michigan, New Jersey, 
Oregon, Rhode Island, Utah, Virginia, West Virginia, Wyoming, Wisconsin, 
Washington. 



KINDS OF CONTRACTS 51 

The use of the individual seal is as old as writing 
itself; in fact there seems to have been a real advan- 
tage in its use before writing became a universal ac- 
complishment. For centuries the art of writing was 
known only to a few scribes or scriveners, and they 
would carefully prepare all documents, but the parties 
to the contracts, not being able to sign even their own 
names, would affix their seals as their signatures, to 
indicate that they gave their consent and approval. 
No. 5.— Release of Mortgage 

In consideration of the payment of the debt named therein, I 
release the mortgage made by T. C. Leming to me, which is re- 
corded in Book 124 of mortgages, page 217 of the Records of 
Phillips county, Kansas. 

Witness my hand and seal this tenth day of October, 1901. 

I. M. Porter. (Seal.) 
State of Kansas, 
Phillips County. 

On this eleventh day of October, 1901, before me, a notary 
public in and for said county, personally appeared I. M. Porter, 
to me known to be the identical person described in, and who 
executed the foregoing instrument, and acknowledged same to be 
his voluntary act and deed. 

^viiumij/^ Carl M. Cook, 

^ N lyl^:.^0 q\ Notary Public. 

$ yv''''' '*■••• 4* "^ My commission expires September 3, 1904. 

£ { —♦— } = 

At a very remote period it was said that the king 
would simply dip his hand in ink and apply it to the 



I ss. 



52 KINDS OF CONTRACTS 

document, letting the great blot serve as Iiis seal or 
signature. Later many devices were used to guard 
against imitation. A pebble would sometimes be 
broken in the middle, leaving an irregular surface; 
this could be used as a seal by pressing it into melted 
wax. But with the development of the art of engrav- 
ing began the really extensive use of the seal, and 
Herodotus tells us that at one time every Babylonian 
wore his private seal. 

The most exquisite works of art preserved from the 
Middle Ages are the monastery seals. They are beau- 
tifully engraved on ivory and precious metals. Some 
are divided into four quarters, each of which was kept 
by one of the four officers. The four pieces are joined 
by a key handle, which remained in the hands of the 
secretary. Thus it was only when the five guardians 
of the seal met together that a complete seal could be 
stamped upon any document. 

The signet ring was much used, and is worn even 
yet to some extent, but the Avritten signature is now 
regarded as the safest means of proving the genuine- 
ness of any document. The private seal as now used 
is nothing more than a relic of barbarism handed down 
to us from the Dark Ages, and is a good example of the 
tenacity with which the legal profession adheres to ob 
solete forms and usages. 



KINDS OF CONTRACTS 53 

89. Simple or Parol Contracts. — A parol or simple 
contract is one not given under seal, that is, there is 
no seal opposite the signature of the maker. Parol 
contracts may be either written or oral, and they con- 
stitute by far the greater part of all the ordinary con- 
tracts in daily use. 

90. A bilateral contract is a two-sided agreement 
where one or more parties on each side of the contract 
are bound by its terms. Example — Yon agree to work 
for me one month, and in return for your services I 
agree to pay yon §50. In this case you bind your- 
self to do the work, and I bind myself to pay $50. 

91. A unilateral contract is a contract having but one 
side. In other words, it is an agreement in which but 
one party is bound by a promise to do anything, the 
other having performed his part of the contract. A 
promissory note is a good example. You loan me 
$50 and by handing me the money you have com- 
pleted your part of the contract; but I give you my 
promissory note for that amount, in which I promise 
to perform my part of the contract, that is, pay the 
$50 back to you. 

92. Expressed contracts are those in which the terms 
and conditions are fully set forth and agreed to. They 
may be either written or oral. 



54 KINDS OF CONTRACTS 

If you say to me, "Please send me five bushels of 
your best potatoes to-morrow, and I will pay you 
$4 for same on delivery," we make an express 
contract if I accept. You have left nothing to be im- 
plied or inferred, but have given the conditions and 
terms in full. 

93. Implied contracts are those in which the parties 
fail to state clearly what was evidently their meaning. 
In the illustration above suppose you say, "Please 
send me five bushels of potatoes." The law then im- 
plies that you will pay for them at the market price, 
and that they shall be good potatoes and delivered 
within a reasonable time. 

When something is omitted from the contract, the 
law always presumes it to be something which is in ac- 
cordance with reason and justice. 

94. A verbal or oral contract is one made by spoken 
words and not reduced to writing. You agree to de- 
liver to me ten bushels of apples within one week, for 
which I agree to pay you $15. This is an oral or 
verbal contract and is as binding as a written one. 
There are certain classes of contracts which the law 
insists must be in writing, but aside from these a 
verbal contract is just as good and as binding as a 
written one, only it is much more difficult to prove. 

95. Written contracts are those in which the parties 



KINDS OF CONTRACTS 55 

put their agreement down in writing, and while it can 
not be said that they are stronger than verbal con- 
tracts, when the verbal contract is legal, yet they have 
many advantages when it comes to proof. People are 
very forgetful, and sometimes they so completely for- 
get their verbal promises as to insist that they never 
made them ; but a written agreement which has been 
signed can not well be denied. 

Written agreements are always express contracts, 
and the law does not usually imply promises which 
are not found in them. 

Certain classes of contracts must be written or the 
law will not enforce them. These are explained in 
what is called the "Statute of Fraud," under which 
heading they are discussed. 

96. Joint Contract. — This is a contract by which all 
the signers agree to perform together the promised ob- 
ligation. They do not promise to do anything individu- 
ally, but agree that jointly or all together they will 
carry out the agreement. The parties to a joint con- 
tract must usually be sued together, but in case of 
death of one of the parties the survivor may be sued 
alone. This form of contract is now practically obso- 
lete, and the joint and several contract has taken its 
place. 

97. Joint and Several Contracts. — In contracts of this 



56 KINDS OF CONTRACTS 

kind the parties not only promise to jointly perform. 
*the obligation, but each individually promises to do it 
alone, and the holder of such a contract may sue all of 
them together or each individually. 

If one who signs a joint and several, or a joint note, 
should be compelled to pay more than his proportion, 
he can recover from the others enough to equalize the 
payments. 

98. Interpretation of Contracts — Oftentimes a con- 
tract is, through ignorance or carelessness, drawn in 
such a manner that it is difficult to understand its 
meaning, and for this reason it is found necessary 
that some rules be laid down for interpreting the 
same. 

99. Intention of the Parties. — The object of these 
rules is to discover, if possible, the exact intention of 
the parties making the contract, and if their mutual 
intention can be ascertained the contract will be inter- 
preted in accordance with same, even Avhen this is di- 
rectly opposed to the written words. 

The presumption of the law is that all contracts are 
made in good faith with the intention of binding the 
parties thereto, and in case the language is such as to 
admit of two meanings, one frivolous and inconsist- 
ent while the other is rational, the rational view will 
prevail. 



KINDS OF CONTRACTS 5< 

100. According to Custom. — Another source of aid in 
ascertaining the real intention of the contracting par- 
ties is found in the usages and customs of trade in the 
particular locality where the contract is to be ex- 
ecuted. 

For example, "cotton in bales'' means compressed 
bales in some places and in others it means merely 
bags, and the meaning of the phrase would therefore 
depend upon the place where the agreement was made. 
Terms used in the contract, whether technical or oth- 
erwise, are to be interpreted according to the cus- 
tomary or popular meaning rather than according to 
the exact definition of the same. 

101. Whole Contract Must Be Consistent. — The inter- 
pretation must be placed upon a contract as a whole, 
and each part must be consistent with all the other 
parts, but should there be some portion of the agree- 
ment that is directly opposed or repugnant to what 
was the evident intention of the parties, such contra- 
dictory part will be stricken out. 

102. Written Portion Will Hold. — Many contracts 
are made on printed forms with blank lines to be filled 
in with a pen, and in case the printed portion conflicts 
with the written part the law will assume the writing 
to be correct. 



58 KINDS OF CONTRACTS 

KINDS OF CONTRACTS 

REVIEW QUESTIONS 

How many kinds of contracts do we have? 

Define an executed contract ; give example. 

Define an executory contract ; give example. 

Define a specialty contract. 

Parol contract, expressed, implied. 

What is meant by private seal, and what was its 
original object? 

Does the seal serve any good purpose now? 

Define bilateral and unilateral contracts. 

Distinguish between an express and an implied con- 
tract. 

What is a joint contract? 

Which is the stronger, a verbal or written contract? 

What is a joint and several contract? 

If the meaning of a contract is doubtful, how will 
the court interpret it? 

If printed and written part of contract differ, which 
will hold? 

Does custom aid in construing contracts? 

Must the contract as a whole be consistent? 



DAMAGES FOR BREACH OF CONTRACTS 59 1 



CHAPTER VI 

DAMAGES FOR BREACH OF CONTRACTS 

103. Contracts are regarded by the law as solemn 
obligations which are made to be performed and not to 
be broken. Every person has perfect liberty in the mat- 
ter of contracting, but once having entered into a law- 
ful agreement no man can wilfully abandon it except 
at his OAvn peril. 

The law will not usually compel a person to perform 
the contract against his will; but an action against 
him for damages will be sustained unless some good 
reason can be shown for its nonperformance. If you 
contract to work for me six months for a certain sal- 
ary and sickness prevents you from completing the 
engagement, you would have a good reason for non- 
performance of your contract, and would not be liable 
for damages; but this rule does not hold except in 
cases where you are expected to do the work per- 
sonally. If it were a contract for building an irriga- 
tion ditch where you would be presumed to employ 
others to do the labor, your personal sickness would 
not generally excuse you in case you failed to have the 
contract completed in the time specified. 



GO DAMAGES FOR BREACH OF CONTRACTS 

104. Amount of Damages. — In case of damages for 
breach of contract the amount of such damages must 
be determined with justice, and as a rule nothing more 
can be collected than the actual loss sustained by the 
plaintiff. Suppose you lease a store room from A at 
$50 per month, but after using it two months you find 
business unprofitable and move out. It is now A's 
duty to use every effort to rent the store to some other 
party, and you will be liable only for the actual loss he 
sustains on account of the change. If he can rent the 
room for $40 per month you will then be liable for 
only $10 per month, but if he can not rent it at any 
price, you will have to pay the full amount named in 
the lease. 

105. Specific Performance, — In some cases the pay- 
ment of money as damages for the breach of a con- 
tract will not answer the purpose, and the law is sat- 
isfied with nothing less than a specific performance of 
the agreement itself. 

Contracts for the sale of real estate belong to this 
class, and the courts will enforce them by compelling 
a conveyance of the property. 

106. /lust Perform Entire Contract.— The general rule 
of the law is that those who contract to deliver a cer- 
lain amount of property or to perform certain labor 
or services must carry out the entire obligation. If 



DAMAGES FOR BREACH OF CONTRACTS Gl 

they perform only a part of the services or deliver only 
a part of the goods, they will not be entitled to any 
compensation whatever. For example, yon contract 
with A to deliver to him by a certain day five hundred 
bushels of wheat. Under this rule if you deliver only 
four hundred ninety-five bushels you lose it all, and A 
keeps same without paying you anything. 

Again, if you agree to work one year for A at an 
annual salary of $1,000, and work only eleven months 
you would not be able to collect any part of the 
salary. 

This rule would not apply where the salary was a 
certain price per month, and the decisions of the 
courts in recent years are rather against the whole 
rule, especially in extreme cases, as it seems now to be 
regarded as too severe. Mr. Sedgwick in his work on 
the Measure of Damages says, "The rule of damages 
in actions for breach of contract is now generally reg- 
ulated by the discretion of the court, according to 
fixed principles, and the courts will not allow an un- 
conscionable (unreasonable) recovery.'' 

107. Liquidated Damages. — When the amount of 
damage for a breach of contract is agreed upon at the 
time the contract is made it is called liquidated dam- 
age. Dr. A sells his office and good will to Dr. B for a 
certain sum and agrees not to practice in the same 



62 DAMAGES FOR BREACH OF CONTRACTS 

locality again for five years. He further agrees in 
case this contract is broken he will pay to Dr. B the 
sum of $2,000 damages. This is called liquidated 
damages. In all cases where damages are demanded 
and the amount of same was not agreed upon when 
the contract was made, they are called unliquidated 
damages. 

108. Exemplary Damages. — The general rule is that 
a person breaking his contract is liable for damages 
only to the amount of the actual loss sustained by the 
injured party; but in cases where there is some wilful 
or malicious wrong committed the law will compel 
the payment of a greater amount than the real loss. 
This is known as exemplary damage, and the addi- 
tional amount paid is called "smart money." 



LEGAL REMEDIES 63 



CHAPTER VII 

LEGAL REMEDIES 

109. For many years it has been the boast of the law 
that no wrong exists which has not a legal remedy. 

If Mr. B fails to keep his agreement with you, if he 
fails to pay his note, if he refuses to pay you for your 
labor or services — in short, if he neglects or declines 
to do anything he has legally contracted to do, you 
have the right to bring suit against him for a breach 
of contract. 

Likewise, if he injures you by some unlawful act, 
you have the right of action against him for the wrong 
done to you. This is called an action in tort. 7 

If a man commits a public wrong it is called a 
crime, and the same is punished under the criminal 
law. 

110. Steps. — In order to enforce the collection of 
any debts through the courts it is necessary to follow 
the various steps given below : 

1. Summons. 

2. Trial. . 

3. Judgment. 



7 Tort is from the Latin tortus which means twisted or crooked; hence it has 
♦eference to any wrongful or crooked act. 



64 LEGAL REMEDIES 

4. Execution. 

5. Levy. 

6. Sale. 

111. Summons. — The person bringing the suit is 
called the plaintiff, and the person against whom the 
suit is brought is known as the defendant. The first 
step in the action is to have the clerk of the court issue 
a summons, which should be served upon the defend- 
ant. This is, in effect, an official notice to him of the 
demands of the plaintiff. The date, place, and hour of 
the trial are given, also the amount for which he is 
sued, so that he may have an opportunity to be at the 
trial and make any defense he may desire. 

112. The Trials — The trial is conducted according to 
certain well known rules, and each party is given 
ample time and opportunity to present his side of the 
case. The law presumes at the outset that the defend- 
ant does not OAve the plaintiff anything, and upon the 
one bringing the suit rests the burden of proof. In 
other words, the law presumes every man is innocent 
until he is proved guilty. 

113. Judgment. — This is the formal decision of the 
court after hearing all the evidence and arguments in 
the case. As soon as the judgment is "entered" it be- 
comes a part of the permanent records of the court. 

A judgment in an inferior court is not necessarily 



LEGAL REMEDIES 65 

final, for usually an appeal may be taken to a higher 
court if either party desires it. 

When you have secured judgment in an inferior 
court against the man who owes you, it usually be- 
comes a lien upon all his real estate located in the 
county where the judgment is rendered, provided a 
transcript or copy of same be filed with the clerk of 
the district court. A copy may also be filed in any 
other county in the same state, when it will become 
a lien on all the defendant's real estate in that county. 

Judgments continue in full force from five to twenty 
years, according to the laws of the different states 
(see table under "Statutes of Limitations"). They 
may be renewed any number of times, so that the per- 
son against whom a judgment is rendered may rea- 
sonably expect to be watched as long as he lives un- 
less he pays the amount of same. No matter where he 
goes or how long he lives he will find the judgment 
will follow him. 

114. Execution. — This is an order issued by the 
court to its executive officer directing him to seize the 
property of the debtor and convert the same into cash 
for the satisfaction of the judgment and costs. 

It is customary to first make the demand upon the 
debtor himself, requesting him to pay the money or de- 
liver sufficient property to meet the obligation. 



66 LEGAL REMEDIES 

115. Levy. — If the debtor refuses to deliver prop- 
erty to satisfy the judgment, the officer will at once 
seize any personal property he can find belonging to 
the debtor. 

If the officer is unable to find any personal prop- 
erty belonging to him he will levy upon the real estate 
of the debtor. 

116. Sale. — Property which has been seized by the 
officer for the satisfaction of a judgment claim, after 
being advertised according to law, is sold, generally 
by auction for the highest cash offer. The money re- 
ceived for same is applied, first, in payment of the 
costs; next to the claim, and if anything remains on 
hand it is paid to the debtor himself. 

117. Garnishment. — It sometimes happens that the 
debtor himself has no property of any kind to satisfy 
the judgment, but Mr. A or some other person may 
owe him. In that case Mr. A will be called into court 
to testify as to the amount he owes the debtor, and a 
judgment will be entered against Mr. A in favor of 
the plaintiff for the amount due. This process is 
called "garnisheeing the debt of another." 

118. Attachment. — The regular form of procedure 
by which a judgment is secured, execution issued, and 
property levied upon meets the requirements of or- 
dinary cases ; but a dishonest debtor might dispose of 



LEGAL REMEDIES G7 

his property and get out of the state before you could 
go through one-half the formalities of a law suit. In 
such cases the court will issue an attachment, and the 
officer of the court will be instructed to seize the prop- 
erty of the debtor at once. This is reversing the reg- 
ular order, by issuing the execution or attachment 
first and having the trial, judgment, etc., afterward. 

The court will not issue an attachment except in 
extreme cases, where it is clearly shown that the 
debtor is preparing to dispose of his property or in 
some way defraud his creditors. 

119. Defenses. — Any reason or excuse a man may 
offer for not fulfilling his contract is called a defense. 
You make a contract with Mr. B to do a certain thing. 
Six months later he sues you for breach of the con- 
tract. You may or may not have a good excuse ; that 
is for the court to decide; but the law will recognize 
any one of the following defenses if clearly proven: 

1. Statute of frauds. 

2. Statute of limitations. 

3. Tender of payment. 

4. Payment. 

5. Performance. 

6. Forfeiture. 

7. Set-off. 

8. Recoupment. 



68 LEGAL REMEDIES 

There may be other defenses, but these are the prin- 
cipal ones. 



DAMAGES AND LEGAL REMEDIES 

REVIEW QUESTIONS 

What are damages? 

How is the amount of damage ascertained. 

May the specific contract itself be enforced? 

If the contract is only partially performed, can 
anything be collected? State this rule fully. 

Define liquidated damages. 

Define exemplary damages. 

What do you mean by legal remedies? 

Name six steps which must be taken to collect a 
debt by law. 

What is summons? 

Who is the plaintiff? 

Who is the defendant? 

What is trial? 

What is judgment? 

When does a judgment become a lien on the de- 
fendant's real estate? 

May a judgment be renewed? 

What is execution? 

What is levy? 

What is sale? 

What is garnishment * 

What is attachment? 



STATUTE OF FRAUDS 69 



CHAPTER VIII 

STATUTE OF FRAUDS 

120. The Statute of Frauds is an old English law 
passed in 1677 during the reign of Charles II. The 
name is somewhat misleading, and it would be better 
understood if called "Statute to Prevent Frauds." 
The object of it was to prevent frauds and perjury by 
requiring certain contracts to be in writing. 

In nearly all the states a similar statute has been 
enacted, with slight variation. We give herein the 
principal requirements of this law as enacted in Ne- 
braska, which is practically the same in other states. 
The following classes of contracts are declared to be 
absolutely void, unless some note or memorandum of 
the contract is made and signed by the party to be 
charged. 

1. For the sale of real estate or any interest in the 
same. 

2. For the lease of land for more than one year. 

3. If by its terms the contract is not to be performed 
within one year from the making thereof. 

4. To answer for the 'debt, default, or wrongful acts 
of another. 

5. Every agreement, promise, or undertaking made 



TO STATUTE OF FRAUDS 

upon consideration of marriage, except mutual prom- 
ise to marry. 

6. Every contract for the sale of goods or chattels 
for the price of $50 or more, unless : 

1. Some part of the goods are delivered, 

2. Some part of the purchase price is paid, or, 

3. The sale is by auction. 

7. Every special promise by an executor or admin- 
istrator to answer damages out of his own estate. 

121. What is Sufficient Writing? — It is not necessary 
that a long or formal contract be drawn in writing, 
but any brief statement on a slip of paper or in a 
memorandum book will do. It need not contain more 
than a few lines, provided it states the agreement as 
made, and is signed by the party who is held to the 
contract. 

Suppose you buy from Henry Marten a lot of corn 
to be delivered in thirty days. To bind the contract 
and avoid the possibility of forgetting the terms you 
might enter the following in your memorandum book 
and have Mr. Marten sign the same : 

I have this day sold to Mr. A three thousand bushels of good 
yellow corn at twenty-five cents per bushel. I hereby agree to de- 
liver this corn in Grand Island before February 1, 1902, same to 
be paid for on delivery. 

(signed) Henry Marten. 

January 4, 1902. 



STATUTE OF FRAUDS fl 

It is not necessary that an agreement be signed by 
both parties, but only the one signing would be bound 
by it. In the above case you could hold Marten to 
the agreement, but he could not hold you. 

If in a great hurry you might simply write : 

Sold to Mr. A three thousand bushels yellow corn at twenty- 
five cents per bushel, to be delivered at Grand Island before Feb- 
ruary 1, 1902 

(signed) Henry Marten. 

Even this brief writing, if signed by Marten, would 
bind the contract, but it is much better to take plenty 
of time and make your agreement cover every point, 
for in this way you will many times avoid misunder- 
standings which otherwise so often occur. 

122. Sale of Interest in Land. — The conveyance of 
land is a matter of great importance and often in- 
volves large sums of money. If verbal agreements 
were recognized by laAv in this class of contracts it 
would open wide the door to fraud and perjury. If 
contracts of this kind were entrusted to oral agree- 
ments, Mr. F, being a dishonest man, might testify 
that you agreed to sell him your farm for f 3,000, when 
in reality it is Avorth $5,000. If this did not answer 
the purpose, he might bribe some other dishonest per- 
son to testify that he was present and heard you 
make the agreement. 

The law, however, states clearly that not only must 



72 STATUTE OF FRAUDS 

the deed of transfer be in writing, but also any con- 
tract in which you agree to sell real estate. Suppose 
A contracts in the presence of several witnesses to 
sell you his house and lot for $1,000. You accept and 
agree to draw up the deed the next day and complete 
the transfer. If A changes his mind and refuses to 
sign the deed you have no remedy and can do noth- 
ing but accept his decision. 

123. Lease for flore Than One Year. — If long verbal 
leases were allowed it would have a tendency to en- 
courage fraud ; therefore the law says they must be in 
writing. Verbal leases are not limited in all states, 
however, to one year, some allowing two and a few 
even three years, as this matter is regulated entirely 
by the laws of each individual state. It should be re- 
membered that an oral contract for the lease of land 
for one year is binding, even though the term of the 
lease does not begin for several months after making 
the contract. The time is counted from the time the 
lease begins and not from the date of the contract. 
Otho Imm leases to George Brown his farm on the 1st 
of January for one year, the term of the lease to begin 
the following March. This is binding though it is a 
verbal agreement. 

124. Not to be Performed Within One Year. — All con- 
tracts must be written which by their terms are not 



STATUTE OF FRAUDS 73 

to be performed within one year from the making 
thereof. 

It will be seen at a glance that this is not only a 
just provision, but one which will save much annoy- 
ance and many disputes. People are too forgetful to 
safely rely on their memories for the exact conditions 
of a contract which was made years before ; therefore 
the law says that verbal agreements which by their 
terms are not to be performed within one year from 
date of same are void. 

On January 1, 1903, you contract verbally with Mr. 
A to buy his horse for f 50 on February 1, 1904. This 
agreement will not bind either party, as by its terms 
it is not to be performed within one year. 

125. Surety for Another Person. — Every contract to 
answer for the debts, defaults, or misdoings of another 
person must be in writing. This is perhaps under- 
stood by fewer people than any other provision in the 
Statute of Frauds. It applies not only to cases grow- 
ing out of contract, but out of tort also. You go into 
a store with me to buy a suit. I tell the merchant to 
sell you goods amounting to $20, and if you do not 
pay for the same I will. This is not valid unless it is 
in writing, as it is an agreement to answer for the 
debts of another. If I had told the merchant to sell 
you twenty dollars' worth of goods and I would pay 






<4 STATUTE OF FRAUDS 

for same, that is binding, for then I am not surety for 
you, but I promise to pay it myself, and it is charged 
to me on his books. In this case you do not owe the 
merchant anything, and he can not collect it from you 
even though I fail to pay the bill. 

You secure a position with a bank, and when they 
ask me about your honesty I tell them I will guarantee 
your honesty and faithfulness to duty. 

This promise is not binding in law unless it is put 
in writing. A person who values either his word or 
reputation will, however, carry out all the guarantee 
he makes, whether they can be enforced by law or 
not. 

126. In Consideration of flarriage — Every agree- 
ment, promise, or undertaking made upon considera- 
tion of marriage, except mutual promises to marry, is 
void, unless made in writing. This refers especially 
to what is known as marriage settlements. One of the 
parties about to wed sometimes promises to deed to the 
other certain real estate or turn over certain other 
property after the marriage; or parents of the bride 
or groom may make a similar promise ; but such con- 
tracts must be in writing, otherwise they will be void- 
able. Our own country has furnished many deplor- 
able cases within recent years where the daughters of 
some of our wealthiest citizens have married bank- 



STATUTE OF FRAUDS <5 

rupt lords or barons of Europe for their titles. In 
exchange for their empty titles these men demand 
enormous marriage settlements and insist that the 
contracts must be carefully drawn and agreed to be- 
fore marriage. 

127. Personal Property Exceeding $50. — Contracts 
for the sale of personal property for a price of $50 or 
more, are void unless : 

1. Some part of the goods is delivered, 

2. Some part of the purchase price is paid, or 

3. The sale is by auction. 

Most of the states have adopted this provision of 
the statute, but there is a slight variation as to the 
limit of the amount. The law of Nebraska fixes the 
amount at $50, and it is the same in most of the 
states. 

Suppose I buy from you one hundred bushels of 
apples at $1 per bushel with the understanding that 1 
will call for them in a few days and pay the price. 
This may be made binding by paying a small sum on 
the purchase price, say one dollar, or by receiving 
from you some of the apples ; otherwise neither of us 
can hold the other to the agreement unless it is re- 
duced to writing. 

If the sale had been for $45, or any sum less than 
$50, a verbal contract would have been binding. 



76 STATUTE OF FRAUDS 

A part payment on any purchase is called giving 
something as an earnest to bind the bargain. 

If the sale is by auction the verbal contract is bind- 
ing upon the buyer even though the amount exceeds 

$50. 






STATUTE OF LIMITATIONS 



CHAPTER IX 

STATUTE OF LIMITATIONS 

128. All of the states of the Union have laws fixing 
the time in which a debt or claim will become outlawed 
unless sued within the time specified. These laws are 
called Statutes of Limitation, but are sometimes re- 
ferred to as the Statutes of Eepose. It is a presump- 
tion of the laAV that a claim which has run for a cer- 
tain time has been paid; and to support this presump- 
tion and avoid litigation it deprives the creditor of 
the right to sue after a certain number of years. 

When a debt is outlawed it is said to be "barred by 
the statute of limitation.'' 

129. floral Obligation.— It should be remembered 
that the Statutes of Limitation do not make the debt 
void. They simply make it impossible to collect the 
claim by a suit at law, but this does not in the least 
remove the moral obligation. 

Suppose you owe a bill at a grocery store in Ne- 
braska and through unfortunate circumstances you 
are unable to pay the same within four years, at which 
time the bill becomes outlawed. The merchant has 
favored you by letting the account run without suit, 
and it would be very ungrateful as well as dishonest 



78 STATUTE OF LIMITATIONS 

on your part to refuse to pay him simply because the 
law does not compel you to do so. 

130. riental or Legal Disability. — If a person is dis- 
qualified by minority, mental disability, or im prison - 
ment from bringing suit at the time the debt becomes 
due, the Statute of Limitation does not operate against 
his claim during the time he is disqualified. After the 
disability has been removed the person so disabled 
may bring suit within a certain limited time specified 
by the statutes of the several states. 

The general rule seems to be that the disability must 
exist at the time the debt becomes due, and then so 
long as the disability continues, the statute has no ef- 
fect. If, however, the limitation begins to run, it con- 
tinues without regard to any subsequent disability. 
This rule does not apply to all the states, but is given 
by Parsons as the general rule. 

To illustrate : you owe A on a note which is due Jan- 
uary 10. On January 9 A becomes insane. His claim 
against you would not become outlawed as long as he 
remained insane, but if he recovers a month later, 
then the statute would begin to run against the debt 
and would continue without interruption even though 
A should again lose his mind. 

131. While Out of the State.— The Statute of Limita- 
tion does not usually count against a debt while the 



STATUTE OF LIMITATIONS Ti) 

person owing the debt is outside the state in which it 
was contracted. 

Some dishonest people think if they leave the state 
for a number of years they can in that manner out- 
law all their debts, but they are often surprised on re- 
turning six or eight years later to learn that their 
debts are all in as good legal standing as when they 
left the state. 

132. When the Time Begins to Run. — The Statute of 
Limitation may be said to run from the first day that 
suit could have been commenced on the debt. In case 
of a note, it would begin as soon as the note was due, 
that is, at the end of the third day of grace. If any 
payments were made on the note the time would then 
count from the date of the last payment. If the note 
be payable on demand it will count from date of same. 
On open accounts the time begins with the last item 
in the bill. 

133. How a Claim May be Revived. — A claim that has 
been barred by the Statute of Limitation may be re- 
vived in two ways: (1) by giving an express promise 
to pay the debt; (2) by making a voluntary payment 
on same. 

In either case the statute would again commence 
to run from the day of the payment or the new prom- 
ise. A number of the states will not recognize this 



80 STATUTE OP LIMITATIONS 

promise as a revival of the debt unless the same be 
made in writing. 8 

It should be remembered that no one can make a 
partial payment on a note or debt that will revive it, 
except the debtor himself. The holder of a note that 
is barred by the Statutes of Limitation would be glad 
to endorse a small payment on it if that would renew 
same ; but the law will not recognize such payment by 
any one except the debtor himself. 

134. What Constitutes a New Promise. — The promise 
made to revive an outlawed debt should be clearly ex- 
pressed, but it may be conditional. For example, a 
man may promise to pay "when I am able," and this 
will revive the debt, provided it can be proven, not 
only that the promise was made, but also that he is 
able to pay it. 



8 California, Georgia, Idaho, Iowa, Kansas, Louisiana, Michigan, Minnesota' 
Missouri, Montana, Nebraska, New Jersey, New Mexico, New York, North Caro- 
lina, Ohio, Oregon, South Dakota, Utah, Vermont, Washington, West Virginia, 
Wyoming. 



STATUTE OP LIMITATIONS 
TABLE OF LIMITATIONS 



81 



STATE 



Alabama 

Arkansas 

Arizona 

California 

Colorado 

Connecticut 

Delaware 

District of Columbia 

Florida 

Georgia 

Idaho 

Illinois 

Indiana 

Indian Territory. . . . 

Iowa 

Kansas 

Kentucky 

Louisiana 

Maine 

Maryland 

Massachusetts 

Michigan 

Minnesota 

Mississippi 

Missouri 

Montana 

Nebraska 

Nevada 

New Hampshire 

New Jersey 

New Mexico 

New York 

North Carolina 

North Dakota 

Ohio 

Oklahoma 

Oregon 

Pennsylvania 

Rhode Island 

South Carolina 

South Dakota 



m 






1 


« 


1 

CO 


o 


-2&C 


PI 




v a 


to 


PI 


CSS 




a 


8? 


rtFj 


O 


o 


W 


3 


6 


10 


3 


5 


5 


3 


5 


5 


2 


4 




6 


6 


6 


6 


6 


17 


3 


6 


20 


3 


3 


12 


2 


5 


20 


4 


6 


20 


4 


5 


5 


5 


10 


10 


6 


10 


10 


3 


5 




5 


10 


10 


3 


5 


15 


2 


15 


15 


3 


5 


10 


6 


6 


20 


3 


3 


12 


6 


6 


20 


6 


6 


10 


6 


6 


6 


3 


6 


6 


5 


10 


10 


3 


8 


8 


4 


5 




4 


6 


6 


6 


6 


20 


6 


6 


16 


4 


6 


6 


6 


6 


20 


3 


3 


10 


6 


6 


6 


6 


15 


15 


3 


5 


5 


6 


6 


10 


6 


6 


20 


6 


6 


20 


6 


6 


6 


6 


6 


20 



20 

10 

5 

5 

G 

20 

20 

12 

20 

7 

6 

20 

20 

10 

20 

5 

15 

10 

20 

12 

20 

10 

10 

7 

10 

10 

5 

6 

20 

20 

7 

20 

10 

10 

26 

5 

10 

20 

20 

20 

20 



6 



82 STATUTE OF LIMITATIONS 

TABLE OF LIMITATIONS— Concluded 



STATE 



Tennessee .... 

Texas 

Utah 

Vermont 

Virginia 

Washington . . 
West Virginia 
Wisconsin. . . . 
Wyoming .... 



! 


.5 


1 


o 


-2&C 


g 




o a 


las 


g 

Pi 




o 


o 


cc 


6 


6 


6 


2 


4 


4 


4 


6 


6 


6 


6 


8 


2 


5 


10 


3 


6 


6 


5 


10 


10 


6 


6 


20 


8 


5 


5 



10 
10 

8 

8 
10 

6 
10 
20 

5 



Simply acknowledging the debt will not revive it. 
In a prominent case before the United States Supreme 
Court one of the partners of a firm said to the plain- 
tiff, "I know we are owing you ; I am getting old and 
I wish to have the business settled." It was held by 
the court that this was not a promise to pay the debt. 

So in New Hampshire in an action on a note, the de- 
fendant on being asked to pay the note said, "I guess 
the note is outlawed, but that makes no difference, as 
I am willing to pay my honest debts." It was held by 
the court that this promise was not sufficient to revive 
the debt. 

135. Where There Are Two Signers. — When two or 
more parties sign a note or contract it may become 
outlawed as to one or more of them and not as to the 



STATUTE OF LIMITATIONS 83 

others. One might make a new promise or a payment ; 
but that would not bind the others. 

Suppose you hold a note against A & B, which is 
long past due, and it will be barred by the Statute of 
Limitation January 15. B comes in January 10 and 
makes a payment on same. This gives it a new lease 
of life, and it can now run five years longer before be- 
coming outlawed as to B; but unless A makes a new 
promise or pays something he will be released on Jan- 
uary 15. If a note has been outlawed, a new prom- 
ise by one of the signers will revive it as to the prom- 
isor, but will not bind the other signers. 



STATUTE OF FRAUDS AND STATUTE OF LIMITATIONS 

REVIEW QUESTIONS 

What is Statute of Frauds? 

Name seven kinds of contracts that must be in 
writing. 

What is sufficient writing? 

What is meant by paying an earnest? 

What is the Statute of Limitations? 

Is there any moral obligation to pay an outlawed 
debt? 

Do the Statutes of Limitation run while the debtor 
is out of the state? 



84 STATUTE OP LIMITATIONS 

When does the time begin to run? 

How may a claim be revived? 

What constitutes a new promise? 

In what time does an account outlaw in your 
state? 

In what time does a written agreement outlaw ia 
your state? 

May a note outlaw as to one of the signers and not 
as to the other? 

Does a revival of the claim as to one of the signers 
revive it as to both? 



LEGAL TENDER 85 

CHAPTER X 

LEGAL TENDER 

136. Tender, when spoken of in a legal sense, means 
the offer of money or any other thing in satisfaction 
of a debt. If the offer is made so as to conform in 
every way with the law it is called a legal tender. 

137. Payment in Money.- — If you owe any debt pay- 
able in money, it must be paid in the kind of money 
which the law recognizes as legal tender. 

The Constitution of the United States gives to Con- 
gress alone the power to determine what shall be legal 
tender, and it has provided that the following moneys 
shall be used as such : 

1. Gold coin, and silver dollars containing 412J 
grains, in any amount. 

2. Treasury notes, in any amount. 

3. Greenbacks for any amount and any debt except 
duties on imports and interest on public debts. 

4. Silver coin smaller than one dollar in amounts 
not exceeding ten dollars. 

5. Nickels, three cent pieces, and coppers not to 
exceed twenty-five cents in one payment. 

The so-called trade dollar containing 420 grains is 
not a legal tender. 



86 LEGAL TENDER 

138. The Effect of Tender.— The fact that legal money 
has been tendered in payment of a debt and refused, 
does not discharge the obligation, but the debtor must, 
stand ready at any time thereafter to pay the amount 
over to the creditor. Suppose you owe Mr. B, accord- 
ing to your books, $50, but he insists that you owe him 
$75. You make him a legal tender or offer of $50, 
but he refuses it and sues you. You must bring into 
court the identical money tendered him and prove 
that you not only offered it to him without conditions, 
but that you have been in readiness to pay him ever 
since the tender was made and are willing to pay him 
there in court if he will accept the $50. If Mr. B does 
not secure judgment against you for more than $50 
he must pay all costs, and you will not have to pay in- 
terest for any time after the tender was made. If he 
secures judgment against you for more than $50 you 
will have to pay all costs. 

139. National bank notes are promissory notes is- 
sued by the national banks under the direction and 
supervision of the United States government. These 
notes are in very common use and are accepted every- 
where, but they are not legal tender, and no one could 
be compelled to take them against his will. They are 
good tender, however, and circulate freely as money. 



LEGAL TENDER 87 

They are discussed more fully under the head of 
"Banks and Banking." 

140. Manner of Tender. — In order to constitute a 
legal tender there must be no conditions attached to 
it. It will not do to say you have the money in your 
pocket or in the bank and will pay him if he will take 
it ; but you must produce the legal money and offer it 
to the creditor. A check or draft will not answer the 
purpose. 

141. Exact Amount. — The money tendered must be 
of the exact amount of the debt, or if it be more you 
can not demand that any change be returned, as that 
would make it a conditional offer. You can demand 
a receipt for the money paid, and in case you are pay- 
ing a note or draft you can insist on having the same 
returned to you. 

142. Chattels. — If a debt is payable in chattels or 
personal property it is the duty of the debtor to be 
present either in person or by agent at the appointed 
time and tender the exact kind and quality of prop- 
erty called for in the contract. If you owe Mr. A fifty 
bushels of apples of a certain kind and quality to be 
paid in October, and you tender same to him accord- 
ing to the exact terms of the contract and he refuses 
them, the debt is thereby canceled, and the right of 
property in the apples passes to Mr. A. You may 



88 LEGAL TENDER 

abandon the apples offered, or if you desire to retain 
possession of same it will be at the risk and expense 
of Mr. A. 

It will be noticed that a tender of money in payment 
of a debt does not discharge same, but the rule is dif- 
ferent when the debt is payable in chattels. In the 
illustration given above, your apples are ripe and in 
condition to deliver in October, and it would be un- 
reasonable for him to refuse to take them at the date 
agreed upon and then demand them the next July. 

Your apples perhaps would not keep until that time, 
and if they did, it would increase your expenses and 
labor; besides they would by that time be worth prob- 
ably two or three times as much as they were in Oc- 
tober. 



PAYMENT 89 

CHAPTER XI 

PAYMENT 

143. What is Payment? — Payment may be denned 
as discharging some debt or obligation. This may be 
done by paying the cash, by delivering some goods or 
chattels, by performing some labor or services, by 
transferring an account, by giving a note, or in fact 
by any lawful method that may be agreed upon be- 
tween the debtor and creditor. It should be remem- 
bered, however, that the law recognizes no payment 
except money unless by special agreement. 

144. Payment in Property.- — A debt may be paid in 
property if it is so stated in the agreement; but the 
property must be delivered in strict accordance with 
the contract, otherwise the creditor may refuse it and 
demand the money. Even when a contract is made 
payable in money, if the debtor and creditor mutually 
agree to settle it by the payment of chattels or per- 
sonal property, it is valid and will cancel the debt, 
even though the chattels are not worth the amount of 
the debt. 

145. Payment by Note." — Giving a note for a debt 
does not pay the debt unless it is expressly agreed 
that it shall do so. Brown buys from you $100 worth 



90 PAYMENT 

of goods and gives you his note in settlement. This 
does not pay the debt unless it is so agreed. It may 
have the effect of postponing the payment of the ac- 
count until the maturity of the note. 

If you should sell Brown's note without guarantee- 
ing it, then it would be regarded as payment for the 
goods, even though he dishonor it when due. If it 
were not considered as payment, you could collect the 
bill from Brown again and would be receiving twice 
the amount of your bill. 

146. Honey Sent by Hail. — If you send money by 
mail to Smith, and it is lost and never reaches him, the 
law will regard this as payment, provided Smith re- 
quested you to send it by the method used. You must 
exercise great care to see that the letter is properly ad- 
dressed according to his instructions, well sealed, and 
placed in the post-office ; then if it miscarries or is lost 
Smith is the loser and not you. It may be well to add 
here that it is never safe to send money in an ordinary 
letter, for if it is lost or stolen the government will 
not stand responsible for it. Even a registered letter 
is not perfectly safe, as the government will become 
responsible for it only to the amount of ten dollars in 
case it is lost in the mails. The proper way is to send 
a money order or bank draft or express order, and 



PAYMENT 91 

then if the same is lost you can have another issued 
without cost. 

147. Note of Third Party. — If the debtor agrees fco 
accept the note of a third party in settlement of a debt 
it will be recognized by the law as full and valid pay- 
ment of the obligation, and even if the note is never 
paid the creditor can recover nothing more for the 
claim. 

148. Part Payment. — As a general rule the part pay- 
ment of a debt, the exact amount of which is known 
and admitted, will not discharge the entire debt, even 
though the creditor agrees that it shall. You are 
owing Crooks $100 and go to him the day it is due and 
offer him $90 in full settlement. He accepts same 
and gives you a receipt in full, and yet he has the legal 
right to sue you the next day for the other ten dollars. 
There has been no consideration pass between you for 
the ten dollars, and it will not stand in law. If 
the part payment was made before maturity, or if the 
amount due was in dispute, then if the creditor agreed 
to take less than face value of claim it would be re- 
garded as discount or a compromise and would pay 
the debt in full. In fact most any kind of an agree- 
ment between debtor and creditor to settle a bill by 
part payment will stand, if some reason can be shown 
why the discount was given. 



92 PAYMENT 

149. A Check in Payment. — Giving a check is not, 
as a rule, considered payment of a debt, if the check 
is not honored on presentation. A gives you a check 
of a third party in payment of a note you hold against 
him, and you cancel and surrender the note; but if 
the check is dishonored this will not be regarded as 
payment unless it was expressly stated that it should 
be. 

150. Counterfeit Honey. — If a man owes you on a 
note or account and in paying the same gives you coun- 
terfeit money, this is not, in the contemplation of the 
law, payment, and the fact that both of you thought 
the money good makes no difference, but you should 
return the money to him within a reasonable time 
after discovering same to be counterfeit. The same 
rule applies to forged checks, notes, or bills of any 
kind. 

151. Presumption of Payment. — There are certain 
conditions under which the law will presume that a 
debt has been paid, and therefore in such cases the one 
owing the debt does not need to prove that he paid it, 
but the burden of proof rests upon the creditor to 
show that it has not been paid. The most common 
cases of this kind are as follows : 

1. Possession by the debtor of his note or agree- 



PAYMENT 93 

ment which was given the creditor at the time of the 
contract. 

2. Possession of an order or draft by debtor. 

3. Possession of a receipt by debtor. 

4. Lapse of time. 

5. Certain subsequent dealings. between the parties. 

152. Possession of Draft, Note, etc. — If Jones sues 
you for the amount of a promissory note and at the 
trial you produce the note which was given him, even 
though it be not canceled or marked paid, the law will 
presume that you have paid it, and the same is true of 
a draft or order of any kind. If Jones can show by ac- 
ceptable evidence that you got possession of the note 
in some illegal way, and that it has not been paid, 
you will be held liable for same. 

153. Possession of a Receipt. — Being in possession of 
a receipt for money or goods furnishes a strong pre- 
sumption that the money has been paid or goods de- 
livered, but it may sometimes be explained in such a 
way as to make it of no effect. For example, you send 
a receipt to Mr. A by some inexperienced person, and 
tell him to collect the money from A and deliver the 
receipt, but he simply gives A the receipt without 
getting the money. Again, employees of large cor- 
porations, as a matter of convenience, are often re- 
quired to sign the pay roll before receiving their pay, 



94 PAYMENT 

but these receipts do not bind them unless they get 
their money. 

154. Lapse of Time. — When no suit has been com- 
menced for the collection of a debt for a certain num- 
ber of years, the law presumes that the debt has been 
No. 6— Receipt in Full of Account 







. i^^^^^^^ ^^^^ nnll aTS 



^rz/. ^tsts£/>-<7 ~X O<Z&0^t>wfr_ sfa 



■>//•*..' « -., - - _ — ... 



^^^^y^L^f 



paid (see table of limitations) . This is a just law for 
the reason that witnesses may move away or die, so as 
to make it difficult to prove the payment if allowed 
to run for any considerable number of years. 

155. Application of Payment. — If a debtor is owing 
the creditor more than one debt growing out of differ- 
ent transactions, the question arises, to which debt 
must the payment be applied. If the debtor indicates 
which one he wishes it applied upon, the creditor must 
follow instructions, but in the absence of any instruc- 



PAYMENT 95 

lions the creditor may apply the payment on any of 
the debts. He may even apply it on a debt that is al- 
ready outlawed, but such payment will not revive the 
balance of the outlawed debt, for the reason that the 
debtor has made no new promise to pay it, and this is 
always required to revive a debt. 

156. Performance. — The defendant in a suit may 
plead as a defense that he has performed the contract 
or as much of it as was agreed upon. He must not 
only show that the thing has been done, but that it 
was done at the time, place, and in the manner pro- 
vided in the agreement. 

157. Set-off. — A set-off is what is sometimes called 
a counter-claim. If A sues you for }50, you may offer 
as a defense that he also owes you. It may be that he 
owes you more tlian $50 and in that case the court 
would give you a judgment against A. 

158. Recoupment. — This is very similar to the set- 
off, with the exception that in recoupment the claims 
on each side must arise out of the same transaction, 
and in a set-off that is not necessary. In a set-off it is 
one debt of any kind against another of any kind, but 
in recoupment it is claiming a discount or deduction 
because of some defect. 



96 PAYMENT 

LEGAL RULES OR MAXIMS 

Ignorance of the law excuses no one. 

No one is bound to do what is impossible. 

Every one is considered innocent until he is proven 
guilty. 

No one is responsible for inevitable accidents. 

No man is competent to be judge in his own case. 

Let the purchaser beware. 

The day begun is held to be completed. 

It is fraud to conceal a fraud. 

Laws are adapted to those cases which most fre- 
quently occur. 

The law does not notice trifling matters. 

What I can not do in person I can not do through 
the agency of another. 



PAYMENT D t 

LEGAL TENDER AND PAYMENT 

REVIEW QUESTIONS 

What is a legal tender of money? 

Name the different kinds of legal tender money. 

What is the effect of a tender of payment? 

If money is offered in payment of a debt and the 
same is refused, does that cancel the debt? 

How does the rule in above questions apply to debts 
that are payable in chattels? 

What is meant by payment? 

Does giving a note for a grocery bill cancel the 
bill? 

Who is responsible for money sent by mail in an 
ordinary letter? 

If counterfeit money is accepted in payment of a 
debt, does that cancel the claim ? 

Is the possession of a receipt positive proof that the 
money has been paid? 

In the absence of instruction, how shall money be 
applied when the payor owes you several different 
bills? 

What is a set-off? 

What is recoupment? 



98 NEGOTIABLE PAPER 

CHAPTER XII 

NEGOTIABLE PAPER 

159. The most common forms of negotiable paper 
are the national bank notes, checks, drafts, and prom- 
issory notes. 

The nse of negotiable paper in business has become 
so extensive that this chapter is deserving of special 
study; in fact, it may be regarded as among the most 
important chapters in commercial law. 

160. Definition. — A negotiable paper is a written in- 
strument which may be transferred from one person 
to another for value. The buyer may sue the same in 
his own name, as if the maker had given it to him 
direct, and it is free from all defenses which might 
have existed against it in the hands of the original 
holder. 

Negotiable paper is intended in one sense as a sub- 
stitute for money, and it must be drawn in such form 
and protected by such laws that the public will feel a 
perfect confidence in accepting the same. Of course 
the purchaser of a note or draft must satisfy himself 
as to the responsibility of the makers before buying it. 
Checks given by well known persons, bank drafts, 
bank bills, certificates of deposit, money orders on 



NEGOTIABLE PAPER {)<] 

express companies, postal money orders, and postal 
notes all pass among business houses the same as 
money. 

161. Essential Elements. — There are seven essential 
elements which must be possessed by every negotiable 
paper, and if one of them is missing, the paper is de- 
prived of its negotiable character. They are as 
folloAvs : 

1. Parties. 

2. In writing, 

3. Payable in money. 

4. Payable absolutely, 

5. Negotiable in form. 

6. Time. 

7. Amount 

162. Parties. — The parties to a negotiable note or 
paper may be separated into (1) original, (2) sub- 
sequent. 

163. Original Parties. — The original parties to a ne- 
gotiable instrument are the ones whose names are 
found on the face of the paper and who are interested 
in it at the time it is made. 

In form No. 7, P. E. Slusser and H. H. Phillips are 
the makers and the Security National Bank is the 
payee, the three being the original parties to the note. 

164. Subsequent Parties.— If the Security National 

LofC. 



100 NEGOTIABLE PAPER 

Bank endorses its name on the back of this note, it 
can then sell it to any other person, who in turn may 
sell it to some one else, and so on; thus it may be 
transferred to half a dozen people before it becomes 
due. 

Every person through whose hands it passes, except 
those named in the face of the note, are subsequent 
parties. 

165. In Writing. — Every negotiable instrument must 
of course be either written or printed or both. Any 
language may be used, and if the signer is unable to 
write he may simply make a mark for his signature, 

HIS 

thus : Richard x Dunn. 

MARK 

Instruments which are signed by a mark should be 
witnessed. Most people use a printed form and fill in 
the date, names, amount, etc., with a pen. Ink should 
always be used, although a note or any negotiable 
paper written with a pencil is valid. 

166. Payable in Money. — A negotiable instrument 
must be payable in money and not in goods or chattels. 
If payable in anything other than money, it loses its 
character as a negotiable paper and becomes a mere 
contract. 



NEGOTIABLE PAPER 



101 



167. Signature of Haker. — It is not necessary that 
the signature should be affixed at the bottom of the 
instrument, although this is the customary form. It 
may be at the top, in the middle, or on the back, or in 
fact any place on the paper, so long as it is clear from 
the appearance of the note or bill that the signer in- 
tended to bind himself for the payment of the same. 
Example. — "I, George P. Larson, promise to pay 

No. 7. — Joint and Several Note 







■'.£ 



<?.o.:' 



l^JM-jy I^CM 




Henry Brown or order Twenty Dollars on the first day 
of January, 1903." 

This note would be perfectly good provided Larson 
wrote it or authorized some other person to write it for 
him. 

The signature may be either written, printed, or 
stamped, just so it is the adopted signature of the 
maker. It may consist of the full name or initials 
only, and it may be affixed by the maker himself or 
his authorized agent. 



102 NEGOTIABLE PAPER 

In a few states 9 notes payable in specific chattels 
are negotiable, but this is not the general rule. 

168. Payable Absolutely. — It has been said that a ne- 
gotiable paper "is a courier without luggage'' ; in other 
words, there must be no conditions or contingencies, 
but it must consist of a positive promise to pay or a 
definite request for some one else to pay a certain sum 
of money. This is not strictly true in every case, as 
there are some contingencies which are admissible. 

169. Contingency. — If a note is made payable on con- 
dition of the happening of some particular event, that 
event must be something which is sure to happen; 
otherwise the note is not negotiable, although it may 
be a binding contract as between the original parties. 
A note made payable three months after the death of 
a certain person would be negotiable, for, while the 
date of maturity is uncertain, death is sure to come 
sometime. 

On the other hand, suppose the note is made pay- 
able three months after the marriage of the signer, or 
payable out of the funds to be received from the sale 
of certain property. Such notes are not negotiable, 
for the maker of the note may never get married ov 
the property may never be sold by him. 



9 Alabama, Illinois, Indiana, Iowa, Kentucky. Minnesota. Montana. Virginia. 



NEGOTIABLE PAPER 103 

170. Negotiable Words. — By this is meant that the 
paper shall contain some words to show that it was 
the intention of the maker that the instrument should 
be transferred from one person to another and not of 
necessity to be retained by the original holder. To 
show this, it is customary to use the words "bearer/' 
"or bearer/'' "or order," "or assigns." A note or paper 
payable to "bearer" or to "Frank Smith or bearer" is 
transferable from one person to another by mere de- 
livery to the purchaser, but if a note is payable to 
"C. D. Searson or order" it must be endorsed by Mr. 
Searson ; otherwise it will not be negotiable. 

171. Time. — This has reference to the time of mak- 
ing the paper and the date of maturity. It is not ab- 
solutely necessary that the paper should be dated, but 
it is much better and more convenient for several rea- 
sons: 1. If the note or bill draws interest, the date 
will be needed in order to compute the amount. 2. It 
may be necessary to know the date so as to determine 
when the paper becomes outlawed. If a note or bill 
is drawn without date it will be presumed to be dated 
on the day of delivery. 

112. Maturity.— The maturity of a bill, that is, the 
date it becomes due, should be carefully stated, or at 
least the information given which will enable the 
holder to easily determine the date. It may be due 



104 NEGOTIABLE PAPER 

"on demand," " days after date," "at sight," or 

" days after sight." 

When no time is stated the paper is presumed by 
law to be payable on demand. 

The following are some of the most common forms 
for fixing the maturity of notes : 

"I promise to pay on demand," etc. 

"I promise to pay ten days after demand," etc. 

"I promise to pay at sight," etc. 

"I promise to pay ten days after sight," etc. 

"I promise to pay ten days after date," etc. 

"I promise to pay December 1, 1903," etc. 

"I promise to pay on or before December 1, 1903," 
etc. 

173. Amount. — A note or bill is not negotiable un- 
less the amount is clearly stated. "I promise to pay 
J. L. Traynor one hundred dollars and all other sums 
due him." 

This would not be negotiable, as it does not fix the 
amount definitely. The amount is usually expressed 
both by words and marginal figures, but this is not 
absolutely necessary. 

174. Amount in Writing. — The amount for which the 
bill is given should be plainly spelled out in the body 
of the instrument, for the marginal figures can 
scarcely be called a part of the contract; but arc 



NEGOTIABLE PAPER 105 

placed there as an aid in reading bad writing and 
poor spelling. 

175. Discrepancies. — Should it happen that the 
amount of a note or bill expressed by the written 
words differs from the figures, the law will presume 
the writing to be correct; but of course a careful per- 
son would refuse to take a paper where there was an 
important difference in the amounts given. 

176. Hisspelling. — While incorrect spelling is re- 
garded as a sure indication of ignorance, the law looks 
only at the intention of the parties, and if the words 
are misspelled in a note or bill it does not injure the 
legal standing of the paper, provided the meaning is 
clear. We were recently shown a promissory note in 
which the signer promised to pay "atey wun dolers." 
While this was a rather severe blow at the rules of 
spelling, there could be no doubt as to the amount of 
the note. 

177. Carelessness. — Many people are very careless 
about filling out notes, checks, or drafts. One of the 
most common faults is to begin writing the amount of 
the check or note in the middle of the line, as shown 
in illustration No. 8. A check filled out in this man- 
ner is an easy mark for any forger into whose hands 
it may fall. He has only to write any amount he de- 



106 



NEGOTIABLE PAPER 



sires to the left of the word "forty" and place a corre- 
sponding figure in the margin. 

To avoid this danger always place your figures near 
the dollar mark and begin writing the amount at the 
extreme left edge of the paper. See form No. 14. 

No. 8. — Check Showing Common Error 



| 

I 



^nqjI^laioljQ^ 



_j? r , <3>-fc 



189 



SMGPtMQMI 







{DOSMSS 



iAfi.Jt Ayo / _ 



_*&Z£L 



CLASSES OF NEGOTIABLE PAPER 107 

CHAPTER XIII 

CLASSES OF NEGOTIABLE PAPERS 

178. Having- briefly considered the essential ele- 
ments of negotiable papers, we will now take up the 
different classes which are in most common use and 
describe them separately. By far the oldest is the 
bill of exchange j or what is more generally called the 
draft. 

179. Draft or Bill of Exchange.— A draft or. bill of 
exchange is simply a written request in which one in- 
dividual asks another to pay a certain sum of money 
to a third person. They are of two kinds, inland and 
foreign. 

180. Inland Bill. — An inland bill of exchange is one 
where the drawer and drawee both live in the same 
state or country. 

181. Foreign Bill. — A foreign bill of exchange is one 
where the drawer and drawee reside in different coun- 
tries or states. 

A draft drawn by any person in the United States 
on some one in London would be a foreign bill of ex- 
change, and the same would be true of a draft drawn 
by a Grand Island man on any one in Denver, 
Colorado. 



108 CLASSES OF NEGOTIABLE PAPER 

It was formerly the custom, when drawing a bill 
of exchange on a foreign country, to draw them in 
sets of three, all being alike except in number. They 
were then sent by different routes and the first one 
reaching the destination would be paid, the others to 
become void. This custom is now almost entirely 
abandoned, as it seems to serve no good purpose. 

182. Convenience. — The draft or bill of exchange is 
the most important negotiable instrument known to 
the commercial world. It not only takes the place of 
money to some extent, but in many cases it is far more 
convenient. 

Suppose W. J. Hynes has 100,000 bushels of wheat 
in New York which he has just sold to F. S. Smith & 
Co., of Liverpool, at $1 per bushel. 

He ships the wheat, and at the end of one month 
receives in gold $100,000, but he must pay for trans- 
portation, insurance, etc., on the gold, something like 
$500, and he has been without the use of the money 
for thirty days, which, at 6 per cent, would be another 
$500. This would be the cheapest method under the 
old system ; but by using the draft Mr. Hynes can load 
his wheat on board the boats, and then draw a draft 
on Smith & Co. for $100,000. This he can attach to 
his bill of lading and cash the same at the bank before 
the wheat has left the wharf. But this is not all, for 



CLASSES OF NEGOTIABLE PAPER 



109 



the banker will often pay one-fourth of 1 per cent 
premium, which would amount to $250, making a net 
gain to Mr. Hynes of f 1,250 by using the draft. 

The banker of course does not have the §100,000 
shipped from Liverpool to New York, but simply 
sends the draft to another bank in Liverpool and has 
same collected and placed to its credit. Perhaps the 
next day some large importer in New York buys a bill 
of goods in England amounting to $100,000, and he 
wishes to save the expense of shipping so much money, 

No. 9. — Bank Draft 




so he goes into the bank and buys a draft on Liver- 
pool for $100,000 at a premium of $150, and sends 
same by mail to pay his bill. By this plan the money 
that should have been shipped to New York to pay 
for the wheat remains in Liverpool and pays for the 
goods purchased by the importer. 

It will be seen that Hynes, the grain man, made a 



110 CLASSES OF NEGOTIABLE PAPER 

profit by the draft, the bank made a profit of $200, 
and the importer saved considerable money, yet not 
a dollar was shipped either way. 

The only case in which it is necessary to ship money 
from one country to another is when the imports and 
exports are unequal. If we buy more from English 
merchants than we sell to them, we must send the 
difference in gold ; but if we sell to them more than we 
buy, they must send us the balance in gold. 

All that has been said above applies with equal 
force to trade between the different states in the 
Union. 

No. 10. — Foreign Bill of Exchange 



£1,000 




New 


Yosk, Jan. 1, 


1902. 


At ten days sight pay to the order of the 
Chemical National Bank of New York 
One Thousand Pounds Sterling, 
value received and charge to the account of 




To F. 


S. Smith & Co., 
Liverpool, England 




W. J. H^ 


l'NES. 



183. , Parties to a Draft. — In the above bill of ex- 
change W. J. Hynes is the drawer, F. S. Smith & Co. 
the drawees, and the Chemical National Bank the 
payee. Sometimes the drawer makes himself the 
payee and then endorses it over to a third party. 



CLASSES OF NEGOTIABLE PAPER 



111 



Drafts are always payable in the currency of the 
country on which they are drawn. 

No. 11. — Sight Draft 



No.3 10 8 . 
t ^Grand Island Banking Company. 

^ ^%^- ^^f f^^ / ?_ Grand Island. Neb.. -^Q- J- ffOl 18S. 




Pay/(6 the order of 



t&frz] (kSfa s<LS ^ ^.™^zd^ y t J Y'~> 7- DOLLARS. 

i HECEIVEO AND C^?ROE^O ACCOUNT Of * VlTH EXCHANGE 



184. Time.— The above draft is called a Sight Draft 
because it is payable at sight. Mauy of the states, 
however, allow three days of grace on even a sight 
draft. If a draft reads "ten days sight" it is a time 
draft and payable ten days after presentation. 

185. Acceptance. — Every draft payable a certain 
number of days after sight, also sight drafts in states 
where days of grace are allowed on them, should be 
presented for acceptance. A draft is accepted by the 
drawee writing across the face of it "accepted," 
"good," or words of similar meaning, followed by the 
date and his name. 

It will be seeu by form' No. 19 that S. C. Hawthorne 
had promised nothing in the draft, and in fact had 
nothing to do with it until it was accepted by him. 
Had he refused to accept or pay the draft, that would 



112 



CLASSES OF NEGOTIABLE PAPER 



have been called dishonoring it. In that case S. D. 
Nixon, the drawer, would have been held for payment. 
186. Promissory Notes. — As before stated, the draft 
is the oldest form of negotiable paper and in fact the 
only one known to common law, and the note is made 
negotiable by statute. A promissory note is a writ- 
ten promise of one person to pay another a certain 
sum of money at a specified time. 

No. 12. — Promissoky Note 



g£§^ 







& 



^ 



*% 



^.a^^^wf ilJ-XiLJ, Tz^U. . 



J£\* r*/ @* * *jfj fo£/3_ Vfo ?T 



l ^C^CzL^^t^ 



nr tii MMr i ! 



187. Parties. — There are two original parties to any 
promissory note, the maker and the payee. The maker 
is the one who signs it, while the payee is the one to 
whose order the note is payable. 

188. Joint and Several Notes. — If a note reads, "We 
promise to pay," and is signed by two or more per- 
sons, they are held jointly or all together for the pay- 
ment of same; but if it reads, "I promise to pay" 
or "We or either of us promise to pay," then each 



CLASSES OF NEGOTIABLE PAPER 113 

signer becomes individually liable for payment of the 
whole note, or they may all be sued together, just as 
the holder sees fit. See form No. 7. 

189. Negotiable Words. — The words "bearer," "or 
bearer," "or order," "or assigns," must appear in every 
negotiable note; but a few states require certain pe- 
culiar words to make a note negotiable. In Alabama, 
Indiana, and Virginia they must be payable at some 
bank. In Arkansas every note must be made payable 
"without defalcation." In Missouri the words "for 
value received" must be used. 

190. Accommodation Note. — This is a note given 
purely as a matter of accommodation. I wish to bor- 
row $500 at a bank, but the bank does not care to take 
my note for that amount. You, being a large prop- 
erty owner and an intimate friend of mine, are willing 
to help me; so you give me your note of $500 as a 
matter of accommodation, with the understanding 
that I will endorse it and then sell it to the bank. This 
enables me to raise the money, but you expect me to 
pay the note when it falls due. If I fail to do this, 
however, you will be responsible for it. 

While the bank or any other purchaser could en- 
force the collection of such a note against you, I would 
not be allowed that privilege, as there was no consid- 
eration for the giving of same. If you had to pay the 

8 



114 CLASSES OP NEGOTIABLE PAPER 

note at maturity, you would of course have the right 
to recover the amount from me. 

191. Is a Debt Paid by Giving a Note? — A negotiable 
note given in settlement of an existing debt is held to 
be payment in full of the original debt or account, 
provided there is no agreement to the contrary. If, 
however, a non-negotiable note is given, the law will 
presume that there was no intention that it should act 
as a payment of the original debt unless it is specially 
agreed that it shall do so. 

192. Judgment Note. — In Illinois, Ohio, and Penn- 
sylvania, judgment notes are in common use; also in 
New Mexico and Wisconsin, where the statutory re- 
quirements are complied with as to the confession of 
judgment. As will be seen by form No. 13, it contains 
not only the promise to pay, but also includes a con- 
fession of judgment for the amount due. 

193. Advantage of Judgment Notes. — A judgment note 
has great advantage over an ordinary note, especially 
when the signer is about to fail in business and it is 
desired to act quickly, as it requires but a short time 
to bring suit, secure judgment, and issue an execu- 
tion. 

Under an ordinary note it often requires several 
months to get judgment. 

Sometimes by the same note the signer waives all 



CLASSES OF NEGOTIABLE TAPER 135 

benefit of the exemption laws, and the sheriff may 
then satisfy the execution out of any property the 
signer may have. 

No. 13. — Judgment Note 



Chicago, III., Jan. 1, 1900. 

Ninety days after date, for value received, I prom- 
ise to pay E. L. Compton, or order, Three Hundred 
Dollars, with interest and without defalcation or 
stay of execution. And I do hereby confess judg- 
ment for the above sum with interest and costs of 
suit, a release of all errors, and waiver of all rights 
to inquisition and appeal, and to the benefit of all 
laws exempting real or personal property from levy 
and sale. 

Witness, W. C. Buck. 

A. C. Mills. 



194. Checks. — A check is simply an order drawn on 
a bank asking for the payment of a certain sum of 
money. It is usually made payable to a particular 
person or his order or bearer. If payable to "A. M. 
Poote or order" it would be necessary for Foote to 
write his name on the back of the check before he 
could either sell it to any one else or cash it at the 
bank; but if it was payable to "A. M. Foote or bearer" 
it would not need his endorsement. It is customary 
with many banks to require the person presenting 
the check for payment to endorse the same even when 
payable to bearer. 



116 CLASSES OF NEGOTIABLE PAPER 

195. Convenience of Checks., — The check is perhaps 
used more than any other form of negotiable paper, 
and it saves a wonderful amount of labor and responsi- 
bility. If the sum to be paid is large, it saves the time 
necessary to count the money, and also avoids the 
likelihood of an error in counting same. 

Business men do not as a rule have good facilities 
for protecting a large amount of money from fire or 
theft, and the use of the check does away with the 
necessity of keeping on hand more than is needed for 
making change. 

196. Grace Not Allowed on Checks. — While checks are 
really a kind of draft, there are no days of grace al- 
lowed on them ; but they are payable on demand. 

No. 14. — Check 




IjraiidXslaiiiLJIeL -_?- ^ -y^u. 189 



^ vv v, 






197. Parties to a Check. — There are three parties to 
a check: the drawer or the one who signs it; the 
drawee, that is, the bank; and the payee, or the one to 
whom the check is payable. 



CLASSES OF NEGOTIABLE PAPER 117 

It is the duty of the holder to see that the check 
is presented at the bank within a reasonable time, and 
if he fails to do this and the bank suspends payment 
he can not hold the maker of the check for the loss, 
but if the payee presents the check at the bank 
promptly, aud for any cause payment is refused, he 
can then hold the drawer and endorsers responsible 
for same. 

Except, in Nebraska, Illinois, and Wisconsin the 
holder has no right of action against the bank, as the 
check is regarded as a contract between the maker of 
the same and the bank. In the three states named, it 
is held that the drawing and delivery of a check is in 
effect an assignment to the holder, of so much of the 
amount to the credit of the drawer, as the check calls 
for. A holder of a dishonored check should always 
take the necessary legal steps, such as notice or pro- 
test, to protect himself and x>reserve his right against 
the maker. 

198. Post Dating Checks. — Some people make a prac- 
tice of post dating their checks; that is, dating them 
ahead. They do this for the reason that they have no 
funds on deposit, and as payment can not be de- 
manded on the check until the date written in same, 
they hope to be able to secure funds and make a de- 
posit before the check is presented. This plan is 



118 CLASSES OF NEGOTIABLE PAPER 

usually regarded as very unbusinesslike and can not 
be recommended. 

199. Overdrafts. — When a depositor draws more 
money from a bank than he has to his credit, he is said 
to have overdrawn his account. 

Unless a man is of excellent financial standing the 
bank will usually refuse to pay his check when it calls 
for more than the amount he has on deposit. 

No. 15. — Form of Check for Less Than Oxe Dollar 



MILWAUKEE.WIS._/%^&^ A ffa&Z HO.*/ <> *$/' 



THE WISCONSIN NATIONAL BANK 

OF MILWAUKEE. 



PAY TO THE ORDER OF 







_. D OLLAnO ' 



C^/g^^^^g^^ 



If a check be drawn when the drawer has no funds 
in the bank to meet it, and has made no arrangements 
with the bank to pay the same, such an act is regarded 
as a fraud, and the holder may prosecute the drawer 
at once. This does not apply to cases where some mis- 
understanding or miscalculation causes one to over- 
draw his account; but in order to hold a person for 
fraud it must be shown that the check was drawn with 
fraudulent intent. 



CLASSES OF NEGOTIABLE PAPER 119 

200. Forged Checks. • — The bank is supposed to know 
the signature of all its customers, and in case it pays 
a forged check it must bear the loss. If it pays a check 
that has been fraudulently raised or increased it can 
charge the drawer only for the original amount. 

If, however, the drawer has been grossly careless 
in writing the check, so as to invite forgery (see form 
No. 8, p. 106), or in any other way is at fault, the 
bank will not be held liable, and the loss will fall on 
the maker of the check. 

201. Certified Check. — A certified check is one that 
has been presented to the bank and marked by them 
as good. Suppose you hold a note against Mr. B for 
$1,000. He calls and offers to pay the same by giving 
a check on the bank, but you know nothing of his 
financial standing and do not like to cancel and de- 
liver his note unless you are sure the check is good, 
so you ask him to go to the bank and have the check 
certified. 

This is done by the proper official of the bank writ- 
ing or stamping on the check the words "Certified" 
and then signing the same. 

As soon as a check is certified, the bank charges the 
amount of it to the account of the drawer. 

202. Raised Check. — A bank in certifying a check 
warrants the genuineness of the signature and the con- 



120 CLASSES OF NEGOTIABLE PAPER 

dition of the drawer's account, but does not warrant 
that the check has not been raised. Suppose the cer- 
tified check given herewith had been originally drawn 
for $100, but before certification it was raised to $500 ; 
the bank would be liable for only $100, and even if it 
paid the whole amount it would have the right to re- 
cover $400 from the person to whom the money was 
paid, but the drawer could be charged for the original 
amount only. 

In a New York decision on this point the court says : 
"When money is paid by mistake on a raised check, 
neither party being at fault, it may be recovered back 
as paid without consideration." 

No. 16. — Certified Check 



v^12106 



(A 







I i zA^yy^pt^^/^V ^<^^m^^^^fY—~ ^Ifa^ 



203. Checks as Receipts. — Many business men pay all 
their bills by checks, even when they have the cash on 
hand. They make each check payable to their cred- 
itor "or order," and he will then have to endorse same 
before he can dispose of it or get the money. These 



CLASSES OF NEGOTIABLE PAPER 121 

checks are carefully preserved by the bank and re- 
turned to the drawer of same each month when his 
bank book is balanced. With the signature of his 
creditor on the back of same, each check operates as 
a receipt, and, being numbered as well as being uni- 
form in size, they are in excellent form for future ref- 
erence. The plan is a good one and can not be recom- 
mended too highly. 

No. 17. — Check Drawn "In Full of Account" 



%. 12106 /////6n\ /tstfrj ^/£#Je / ^fcwy//?Jtim?i£&' (or 







vJj lJ fl.X^MMWVWm^ A- < f<SS,0 'X 



i&Miil 




-d^Y^ 



■ ffyeadefi£ta/. raasuwra: 



204. Check "In Full of Account. " — Sometimes the 
drawer of a check writes on same the statement that it 
is given to the payee in full settlement of a certain 
debt or account; but the particular circumstances 
surrounding the case must be considered to determine 
whether or not it really settles the account referred 
to. If a check drawn "in full of account" be sent in 
payment of a disputed claim, it operates as a compro- 



122 CLASSES OF NEGOTIABLE PAPER 

inise, and will be considered as payment in full, pro- 
vided the payee retains it. But if such a check be sent 
in payment of an undisputed account, it will not be 
regarded as payment in full, even if retained by payee, 
unless it be drawn for the full amount of the account. 
No. 18. — Certificate of Deposit 



Crnhu- point Jfotoa. ^ztmaapu^Jl/pai^ -Nn. 11639 

i: 'JSk-- 'JAMS (jERTIFIES, ///r//^y^f^^^i^//^ rt^^S^, ^— -. 

^ J^^^^K^C ll\MI>ljf(>Slt»!l> WITH « 





c«wt». L 



205. Certificate of Deposit.— This is a certificate is- 
sued by the proper official of the bank stating that the 
amount of money named has been deposited in the 
bank payable to the order of the depositor. A certifi- 
cate of this kind is negotiable in all the states except 
Pennsylvania, and must be surrendered when the 
money is drawn, as it is not subject to check. 

This form of deposit is generally used when it is ex- 
pected that the money will remain in the bank for con- 
siderable time or when the depositor has no occasion 
for giving checks. Should the holder want to draw a 
part of the amount called for at any time the old cer- 



CLASSES OP NEGOTIABLE PAPER 123 

tificate is canceled and a new one issued for the bal- 
ance, or the amount paid may be endorsed on the back 
of the instrument. 

206. Stopping Payment. — If some fraud or error is 
discovered after a check has been delivered, or if for 
any other reason the drawer wishes to recall it he may 
"stop payment" by directing the bank not to honor 
same. 



1^4 ENDORSEMENTS 



CHAPTER XIV 

ENDORSEMENTS 

207. Definition. — An endorsement is anything writ- 
ten on an instrument having reference to the instru- 
ment itself. If a person places his name on the back 
of a note or bill he is called the endorser, and the one 
to whom he gives the paper is called the endorsee. 

208. Objects of Endorsement. — The endorsement and 
delivery of a paper not only transfers the title to the 
endorsee ; but it serves as evidence of a contract made 
between the seller and buyer of the note, whereby the 
seller generally becomes responsible for the payment 
of the note under certain conditions; provided the 
original maker fails to pay the same. 

209. Where to Make an Endorsement. — An endorse- 
ment should be made on the back of the paper about 
an inch from the left end. It should be written across 
the note the narrow way and all subsequent endorse- 
ments should be made directly under the first one. To 
endorse a check or bill on the wrong end, or length- 
wise of the paper, always serves to point out the en- 
dorser as a person without business experience. 

210. Forms of Endorsement. — Where notes or bills 
are payable to "bearer" or to "A B or bearer" they 



ENDORSEMENTS 125 

may be transferred from one person to another with- 
out endorsement ; but where they are payable to "A B 
or order" they must be endorsed by "A B" before he 
can transfer his title to any one else. 

There are five forms of endorsement in common use, 
and A B may use any one of them he prefers, so long as 
it is satisfactory to the endorsee. 

The forms most frequently seen are as follows • 

1. In Blank,— Example : "Richard Stolley." 

2. In Full. — Example: "Pay A. M. Johnson or 
order, Richard Stolley." 

3. Without Recourse. — Example : "Without re- 
course to me, Richard Stolley." 

4. Restrictive. — Example: "Pay to Clyde Haw- 
thorne only, Richard Stolley." 

5. Conditional. — Example: "Pay to Henry Brown, 
provided he graduates from the Grand Island Busi- 
ness and Normal College before April 1, 1903, 

"Richard Stolley." 
While a note payable to A or bearer is transferable 
without endorsement, yet if it be endorsed the en- 
dorser will generally be held liable. 

211. Endorsement in Blank. — An endorsement in 
blank is made by the endorser simply writing his name 
on the back of the paper. This makes the instrument 
payable to bearer, and it does not need any further 



126 • ENDORSEMENTS 

endorsement, no matter how many times it be trans- 
ferred. It is so called because the name of the person 
to whom the paper is transferred is left blank, and any 
one coming into possession of the paper may fill in the 
same. To illustrate, Mr. A buys a bank draft for $500 
payable to himself or order, which he endorses in 
blank and sends to you. You do not wish to hold a 
draft payable to bearer, and to guard against the 
danger of theft or other loss you may write above Mr. 
A's name "Pay to the order of (your name)." Should 
the draft now be lost or stolen no one can collect same, 
as it must have your signature on the back before it 
will be paid. Notes, drafts, or bills which are to be 
sent through the mails should not be endorsed in 
blank, for they may become lost or stolen and if sold 
to a bona fide purchaser for value he can collect the 
same. 

212. Endorsement in Full — An endorsement in full 
is one which mentions the name of the person in whose 
favor such endorsement is made. Example — "Pay to 
Howard Bristow or order, W. H. Ricks." 

This endorsement being made, the note can not be 
transferred again without being endorsed by Bristow. 

This is the proper form for general use in sending 
a bank draft or other negotiable paper through the 
mails, for no matter if it be lost or stolen no one can 



ENDORSEMENTS 127 

collect it until the endorser puts his name on the back 
of it. 

213. Endorsement Without Recourse. — The law or- 
dinarily makes every endorser of a paper conditionally 
responsible for the payment of same, but the endorser 
may qualify this responsibility by the form of his en- 
dorsement. 

If one wishes to simply sell an instrument without 
making himself liable for the payment of the same, he 
may use the following form : "Pay to Mr. A without 
recourse to me. Geo. N. Brown." 

This is called an indorsement without recourse, and 
while such an endorser can not generally be held for 
payment, when the maker fails to pay the bill, yet it 
should be remembered that he can not entirely avoid 
responsibility, for he is a guarantor of the genuine- 
ness of the instrument, and should the signatures of 
any of the makers or endorsers prove to be forgeries, 
or should it be shown that any of the prior parties 
were incompetent, he will be held responsible. 

214. Restrictive Endorsement. — A restrictive endorse- 
ment is one that restricts the payment to a particular 
person or for a special purpose. When it is desired 
to prevent the bill from being further transferred, the 
following forms may be used : 

"Pay to Mr. A B only" or "Pay to A B for my ac- 



128 ENDORSEMENTS 

count." When a paper is left with an attorney or 
agent for collection it may he endorsed as follows : 
"Pay 'to A B for collection and remittance." 

This does not dispose of your title to the paper, but 
only transfers the instrument for a special purpose 
and entitles the collector to act as your agent. You 
have a perfect right to recall the paper at any time 
and strike off the endorsement by drawing your pen 
through the same. 

Another form of restrictive endorsement in common 
use by business men is as follows : "For deposit to ac- 
count of A B." This endorsement does not restrict 
the circulation of the instrument, but all who handle 
it after this endorsement do so merely as agents for 
AB. 

215. Conditional Endorsement. — A conditional en- 
dorsement is one in which the order of payment is 
made conditional upon the happening of some event or 
the performance of some stipulation named in the en- 
dorsement. Example — "Pay to A B or order if he is 
living when due." 

The payer of a bill containing a conditional en- 
dorsement should be careful to see that the conditions 
have been met, otherwise he is liable for a second pay- 
ment. 

216. Who Should Endorse. — If a paper is payable to 



ENDORSEMENTS 129 

the order of several persons, each one should individu- 
ally endorse it; but if it is payable to a partnership, 
any member of the firm may endorse it by using the 
firm name. 

217. Order of Liability. — Endorsers on a note are re- 
sponsible for its payment in the order they have signed 
the same ; in other words, if there are five endorsers on 
a note the last one promises to pay it only on condi- 
tion that the maker and the other four endorsers fail 
to do so. 

218. An Allonge (al-lunj'). — It sometimes happens 
that a negotiable paper is transferred so many times 
and receives so many endorsements that the back of 
same becomes completely filled. It is then necessary 
to attach to it a piece of paper on which other en- 
dorsements may be made. This extra paper is called 
an allonge. 

219. Rights of Endorsers. — When an endorser of a 
note or bill finds it necessary to pay the same he is en- 
titled to the paper, and it becomes his property. He 
has a perfect right to sell it if he can find a buyer, or 
he may dispose of it in any way he sees fit. 



130 CONDITIONS OF TRANSFER 

CHAPTER XV 

CONDITIONS OF TRANSFER 

220. As before stated, negotiable papers are in- 
tended to circulate freely from hand to hand and to 
some extent answer the purpose of money. For this 
reason the rules governing the transfer of same must 
be such as to give every honest buyer the utmost con- 
fidence. The law must give him a positive assurance 
that the paper will be his if he buys it, and that his 
title will be perfect and beyond question. 

Thus far we have discussed the manner and form 
of drawing these papers, but now we come to the con- 
ditions under which they may be transferred from one 
person to another. 

While, as above stated, the law will protect a bona 
fide (bo'-na fi'-de) purchaser, that is, one who buys in 
good faith, it should be remembered that he must con- 
form to the following conditions : 

1. The instrument must be negotiable. 

2. He must be an innocent purchaser. 

3. He must give value for it. 

4. He must buy it before maturity. 

5. He must buy it in the usual course of business. 
If all these conditions are fully complied with, the 



CONDITIONS OF TRANSFER 131 

holder will acquire a perfect title to the instrument 
and can enforce his right of collection, even though 
the paper has been obtained from the maker in the 
first place by theft or fraud. 

221. ilust be Negotiable. — Great care should be 
taken before buying a note or bill to see that it is ne- 
gotiable in form. It must contain a positive promise 
to pay, or an order for some one else to pay a definite 
sum of money. It must also be payable to bearer or 
to the order of the payee. 

222. Innocent Purchaser. — An innocent purchaser is 
one who buys the note in a perfectly honest manner, 
and is innocent of any defense or claims that exist 
against the paper. 

If you buy a note from Mr. A, knowing that he has 
not a good title to same, you will receive no better title 
than he has, no matter if you pay him the cash for 
the note. 

While the law will protect the innocent buyer, he is 
of course supposed to exercise ordinary discretion, 
and should there be anything about the conduct of the 
seller, or in the circumstances under which the note 
is offered for sale, to arouse the suspicion of the buyer 
and suggest fraud or defects of any kind, he should 
take time to investigate; otherwise he may have dif- 



132 CONDITIONS OF TRANSFER 

ficulty in establishing his claim of being an innocent 
purchaser. 

223. Must Give Value. — A person who comes into pos- 
session of a note without giving value for it can not 
enforce collection of same, provided there is any just 
claim against the note. 

This rule is based on the theory that the holder, 
having paid nothing for the note, will therefore lose 
nothing in case the note is declared void. 

It should be remembered, however, that he need 
not pay the face value of the paper, or need not pay 
anything in money ; but the payment may be made in 
anything of value, and the buyer will receive a good 
title. 

224. Lost Notes or Bills., — From the above paragraph 
it will be inferred that if a note or bill is lost or stolen, 
the finder or thief can not enforce collection, even 
when the paper is payable to bearer, and this is cor- 
rect, provided the facts are known to the maker, but 
if he should sell the lost or stolen paper to an innocent 
purchaser for value the purchaser would acquire a 
good title and be able to collect same by process of 
law. 

225. Burden of Proof. — Any person having a negoti- 
able instrument in his possession which is properly 
endorsed or payable to bearer is presumed to be a 



CONDITIONS OF TRANSFER 133 

bona fide holder of same, and in case he brings suit 
to collect it, he does not have to prove in what manner 
he came into possession of it. The law presumes that 
he acquired it in the regular course of business and for 
a valuable consideration, and it lies Avith the defend- 
ant in the case to prove the contrary. If the defend- 
int offers evidence tending to show that fraud has 
been practiced in acquiring the title, then the holder 
oiust produce evidence showing that he is in fact the 
bona fide holder. 

226. Before Maturity. — The rights of a purchaser 
often depend entirely upon whether the note or bill 
was bought before or after maturity. If it was bought 
before it became due, and in good faith for a valuable 
consideration, the buyer will receive a perfect title, 
no matter what the rights may have been between the 
original parties. If the buyer has knowledge of any 
defense existing against the paper, such as lack of, or 
illegality of consideration, he will not acquire a good 
title even if it is purchased before maturity. 

227. After riaturity. — He who buys a negotiable pa- 
per after it becomes due does so at his peril, for, while 
the instrument is still'transferable, it is subject to all 
defenses existing against it at maturity. In buying a 
past due paper you simply acquire the rights of the 
selk i r, and if he has a good title yours will be good ; 



134 CONDITIONS OF TRANSFER 

but if he has no title you will receive none. The fact 
that a note or bill is past due is enough to arouse sus- 
picion, for the legal presumption is that it would 
have been paid when due had there been no defense 
against it. 

228. In the Usual Course of Business. — A holder of a 
negotiable paper must come into possession of it in the 
usual course of business if he would acquire all the 
rights of an innocent purchaser. In other words, he 
must receive the paper as an ordinary commercial 
transaction. A receiver of a bank, for example, who 
has property and notes turned over to him, does not 
come into possession of them in the usual course of 
business, for he is only acting as an agent to close up 
the affairs of the bank. 

It is somewhat uncertain as to whether a person 
taking a note as collateral security receives it "in the 
usual course of business" or not, as the decisions are 
not uniform upon this point. 

229. Where There Are Several Transfers. — A note or 
bill may have been secured by the original holder 
through fraud or theft, and yet, if it be purchased in 
good faith by an innocent buyer before maturity for a 
valuable consideration and in the usual course of 
business, he acquires a title that can never be ques- 
tioned. 



CONDITIONS OF TRANSFER 135 

This transfer perfects the title, and any future buy- 
ers will receive their title from the innocent pur- 
chaser and not from the original holder ; so that each 
subsequent purchaser will acquire a good title even 
though he knew of the fraud or theft committed by 
the original holder. 

230. When a Paper Matures. — As negotiable papers 
should be transferred before maturity in order that 
the purchaser may be sure of a perfect title, it is a 
matter of great importance to know exactly when the 
paper matures or falls due. When the time is stated 
in days, the actual number of days are counted ; when 
the time is given in months, it is understood to mean 
calendar months. It is customary to count the day of 
maturity, but not the day of date. 

231. Days of Grace. — There are three days allowed 
by many states on all negotiable papers beyond the 
time stated in the instrument itself. This is a very 
old custom and was at first regarded purely as a mat- 
ter of favor or grace, and no interest was charged for 
same, but after long use it has grown into a law, and 
interest is now charged. 

A note dated January 1, and payable ten days after 
date would at first seem to be due January 11, but 
in reality it is not due until January 14, for the law 
gives the maker three extra days of grace, and no 



136 CONDITIONS OF TRANSFER 

suit can be commenced on the note until January 
15, as he has all of the last day of grace in which to 
make payment. 

232. Grace Not Allowed, — Days of grace are not gen- 
erally allowed on demand notes or notes which are 
not negotiable ; neither are they allowed on checks or 
drafts drawn on banks or bankers. 

While the custom of allowing days of grace on ne- 
gotiable paper was formerly almost universal in this 
country, within recent years the following states have 
abolished the same by statutes : California, Colorado, 
Connecticut, Delaware, District of Columbia, Florida, 
Illinois, Idaho, Maine, Maryland, Massachusetts, Mon- 
tana, New Hampshire, New Jersey, New York, North 
Dakota, Ohio, Oregon, Pennsylvania, Utah, Tennes- 
see, Vermont, Virginia, West Virginia, Washington, 
and Wisconsin. No grace is allowed on sight drafts 
in Kansas, Missouri, Georgia, Louisiana, or Nevada. 

233. If Due on Sunday. — When the last day of grace 
falls on Sunday the note or bill will be due the day 
before, and if that be a holiday the note will mature 
Friday. There are only one or two states that vary 
from this rule. 

234. Legal Holidays.— In the United States we have 
no national holidays, although each state has, by act 
of the legislature, designated such days as it will re- 



CONDITIONS OF TRANSFER 137 

gard as legal holidays. The following list represents 
the holidays most commonly recognized : New Year's 
Day, January 1; Lincoln's birthday, February 12; 
Washington's birthday, February 22; Decoration 
Day, May 30 ; Independence Day, July 4 ; Thanksgiv- 
ing Day, last Thursday in November ; Christmas, De- 
cember 25; Arbor Day and Labor Day. We give be- 
low a brief condensation of the statutes of a number 
of the western states relative to days of grace and 
holidays which are recognized for all purposes relat- 
ing to presenting, sending notices, and protesting 
negotiable papers. 

235. Nebraska. — The legal holidays in Nebraska are the fol- 
lowing: New Year's Day, January 1; Washington's birthday, 
February 22; Arbor Day, April 22; Decoration Day, May 30; 
Independence Day, July 4; Labor Day, first Monday in Septem- 
ber; Thanksgiving Day, last Thursday in November; Christ- 
mas, December 25. 

No court can be open nor can any judicial business be trans- 
acted on Sunday or any legal holiday except to give instructions 
to a jury, to receive a verdict, or discharge a jury, or in a few 
other extreme cases calling for immediate action. 

Days of grace are allowed on all negotiable papers except 
bank checks and instruments payable on demand. If the third 
day of grace falls on Sunday or a legal holiday the bill is pay- 
able the next Monday. Notes given on Sunday are not void. 

236. Kansas. — The legal holidays in Kansas are as follows: 
Sundays; Washington's birthday, February 22; Decoration Day, 
May 30; Independence Day,* July 4; Christmas Day, December 
25; New Year's Day, January 1; Thanksgiving Day, last Thurs- 
day in November; Labor Day, first Monday in September. 

Days of grace are allowed on all negotiable papers except 
bank checks and sight drafts. 

When the third day of grace falls on Sunday or a legal holi- 



138 CONDITIONS OF TRANSFER 

day the preceding day shall be deemed the last day of grace. By 
act of 1893, special provision in notes, bonds, and mortgages, 
making amount payable in gold, is void. 

237. Colorado.— The legal holidays in Colorado are as follows: 
New Year's Day, January 1: Washington's birthday, February 
22; Decoration Day, May 30; Independence Day, July 4; Arbor 
Day, third Friday in April; Labor Day, first Monday in Septem- 
ber; Thanksgiving, last Thursday in November; Christmas, De- 
cember 25; election day, the first Tuesday after the first Monday 
in November; and in cities of 100,000 inhabitants or over, Sat- 
urday afternoons during the months of June, July, and August 
of each year. When holidays fall on Sunday, the following Mon- 
day shall be considered as the holiday. Notes maturing on Sun- 
days or holidays are payable the following day. 

Days of grace have been abolished. An instrument payable 
at a bank is equivalent to ordering the bank to pay the same 
for the account of the debtor. Judgment notes are not used. 

238. South Dakota. The legal holidays in South Dakota are as 
follows: Sundays; New Year's Day, January 1; Washington's 
birthday, February 22; Independence Day, July 4; Christmas, 
December 25; Decoration Day, May 30; every state election day, 
first Tuesday after the first Monday in November; Labor Day, 
first Monday in September; Thanksgiving Day, last Thursday in 
November. If January 1, February 22, July 4, or December 25 
fall on Sunday the Monday following shall be a holiday. 

Days of grace are allowed on all notes and drafts whether 
demand or time, except bank checks, but Sundays and holidays 
are excluded in computing grace. Judgment notes not in use. 

239. North Dakota. — The legal holidays in North Dakota are 
as follows: Sundays; New Year's, January 1; Lincoln's birth- 
day, February 12; Washington's birthday, February 22; Decora- 
tion Day, May 30; Independence Day, July 4; Christmas, Decem- 
ber 25; every election day, first Tuesday after the first Monday 
in November; Thanksgiving, the last Thursday in November. 

If January 1, February 22, July 4, or December 25 falls upon 
Sunday, the following Monday shall be a holiday. 

Days of grace are not allowed. When no time of payment 
is specified in an instrument, it is payable immediately. 

240. Iowa.— The legal holidays in Iowa are as follows: Sun- 
days; New Year's Day, January 1; Washington's birthday, Feb- 
ruary 22; Decoration Day, May 30; Independence Day, July 4; 



CONDITIONS OF TRANSFER 139 

Labor Day, first Monday in September; Christmas, December 25; 
Thanksgiving, last Thursday in November; general election 
day. 

Three days of grace are allowed on all negotiable papers ex- 
cept those payable on demand, and if the last day falls on Sun- 
day or a legal holiday, the instrument becomes due on the second 
day of grace. Judgment notes not used. 

241. Illinois. — Legal holidays in Illinois are as follows: New 
Year's Day, January 1; Lincoln's birthday, February 12; Wash- 
ington's birthday, February 22; Decoration Day, May 30; Inde- 
pendence Day, July 4; Labor Day, first Monday in September; 
Thanksgiving, last Thursday in November; Christmas, Decem- 
ber 25. 

Days of grace abolished since July 1, 1895. When a holiday 
falls on Sunday the next Monday will be the legal holiday. All 
notes or evidence of indebtedness maturing on Sunday or a legal 
holiday will become due on the day following. If the following 
day should also be a holiday or Sunday then the instrument will 
become due the next day. 

Noies obtained by fraud can not be collected even when in the 
hands of innocent holders. 

242. Missouri. — The legal holidays in Missouri are as follows: 
New Year's Day, January 1; Washington's birthday, February 
22; Decoration Day, May 30; Independence Day, July 4; Labor 
Day, first Monday in September; election day, first Tuesday after 
the first Monday in November; Thanksgiving Day, the last Thurs- 
day in November; Christmas, December 25. Half holidays are 
allowed every Saturday afternoon throughout the year in cities 
of 100,000 inhabitants or more. Holidays falling on Sunday are 
observed the day after. Judgment notes are not used. Days of 
grace are allowed except on sight bills. 

243. flontana. — The legal holidays in Montana are as follows: 
Sundays; New Year's Day, January 1; Washington's birthday, 
February 22; Decoration Day, May 30; Independence Day, July 
4; Labor Day, first Monday in September; Christmas, December 
25; every general election day; and Thanksgiving Day. 

If a holiday falls on Sunday the day following will be regarded 
as a holiday. Days of grace are abolished. 

244. Wyoming.— The legal holidays in Wyoming are as follows: 
New Year's Day, January 1; Arbor Day, April 30; Washington's 
birthday, February 22; Decoration Day, May 30; Independence 



140 CONDITIONS OF TRANSFER 

Day, July 4; Labor Day, first Monday in September; state elec- 
tion days; Thanksgiving, last Thursday in November; Christ- 
mas, December 25. 

Holidays falling on Sunday are observed the following Mon- 
day, and notes or bills maturing on a legal holiday are due the 
day before. Days of grace are allowed on all negotiable papers 
except demand notes and checks or drafts on banks. 



PRESENTMENT FOR ACCEPTANCE 141 



CHAPTER XVI 

PRESENTMENT FOR ACCEPTANCE 

245. Observation. — It should be remembered that 
while a drawer of a draft or bill of exchange is re- 
sponsible for the payment of same in case it is dis- 
honored, yet his liability is only conditional. It is in 
fact much the same as that of an endorser, and unless 
the holder of the draft makes proper demand for ac- 
ceptance and payment, and carries out all the condi- 
tions required of him, the drawer and endorsers will 
be released from any liability in case of non-payment 
of the draft. 

246. What is Acceptance? — The customary form of 
accepting a draft is to write or stamp the word "ac- 
cepted" across the face of the instrument, followed 
by date and signature of the acceptor. In the absence 
of statute to the contrary, an oral acceptance is held 
to be valid on existing drafts, but no careful person 
would buy a bill accepted in this manner. 

247. Drafts Which Should be Accepted.— All time 
drafts and all sight drafts in states where they are al- 
lowed days of grace should be presented for accept- 
ance. If a draft is drawn payable at "ten days sight," 
it of course must be presented in order to fix the date 



142 PRESENTMENT FOR ACCEPTANCE 

of maturity, as the acceptor will have ten days after 
presentation in which to pay the bill, and if grace is 
allowed he will have three days more, making thirteen 
days in all. 

Many states allow three days of grace on sight 
drafts, and in that case they must also be presented 
for acceptance in order to fix the date of maturity. 
When a draft is payable "ten days after date" it is not 
really necessary to present it for acceptance, but it is 
better to do so. If acceptance is refused on a draft it 
is not necessary that it should be presented for pay- 
ment in order to protect your rights against the 
drawer. 

248. Effect of Acceptance. — A draft is simply an 
order given by one person to another requesting a 
third party to pay a certain sum of money. In form 
No. 19, S. D. Nixon is the drawer, Chas. W. Kerlin the 
payee, and S. C. Hawthorne the drawee or acceptor. 

It will be noticed that Hawthorne did not become a 
party to this instrument until he accepted it. It was 
merely a request from Nixon for him to pay Kerlin 
|247.50, and, had he refused the request, Kerlin 
could not have sued him on the draft, but having ac- 
cepted it, it then takes the character of a note, and 
Hawthorne can be legally held for the payment. 



PRESENTMENT FOR ACCEPTANCE 143 

No. 19. — Acceptance 



Grand Island Business & Normal College 
no 3-1 94 2 

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A^^ Dollars 



249. When Drafts Should Be Presented. — Every draft 
requiring acceptance should be presented to the 
drawee for that purpose within a reasonable time. 
Just what a reasonable time is can only be determined 
when all the circumstances surrounding the particu- 
lar case are taken into consideration. 

If you hold a sight draft against me when we both 
live in the same town you should present it at once, 
for if you delay a week, and in the meantime I fail in 
business, you have waited an unreasonable time and 
can not hold the drawer or endorsers, but must bear 
the loss yourself, unless you can show some good rea- 
son for the delay. 

A draft should be presented during the customary 
business hours, which generally means between early 
morning and bed time, but in case of banks it should 
be presented during their regular hours for doing 
business. Any distinct custom established in the 



144 PRESENTMENT FOR ACCEPTANCE 

locality as to the time of presentation would no doubt 
be respected by the courts. 

250. Who Should Present it?— A draft or bill should 
be presented for acceptance by the holder or his lawful 
agent. The holder may be the payee named in the in- 
strument, or he may be any one who has come into 
possession of it in due course of business. 

251. To Whom. — The draft should be presented to 
the drawee or his authorized agent for acceptance. If 
drawn on a firm it may be presented to any one of the 
partners, but if drawn on two or more persons who 
are not partners it should be presented to each one 
individually. 

It has been held that a clerk apparently in charge 
of the drawee's office is a suitable person to whom the 
bill may be presented for acceptance. 

252. Where to Present Draft. — A draft may be pre- 
sented at the office or home of the drawee, and in case 
he has changed his residence it is the duty of the 
holder to make diligent inquiry and search for him. 

The draft may be drawn payable at a certain bank 
or business house, but even then the holder must seek 
the drawee to secure his acceptance, for it will be 
noticed that the drawee has not yet promised to pay 
( lie draft at the bank or any other place. In case the 



PRESENTMENT FOR ACCEPTANCE 145 

drawee can not be found the draft will be regarded as 
dishonored. 

253. Excuses. — The payee of a draft is held to very 
strict account in the matter of presenting the instru- 
ment for acceptance. There are, however, a few ex- 
cuses which are usually recognized, such as illness, 
flood, fire, war, etc. 

254. How to Present a Draft. — The person who pre- 
sents a bill for acceptance should have it in his pos- 
session and should produce the same and exhibit it to 
the drawee or his agent with the request that it be ac- 
cepted. The drawee has a right to examine the draft 
and satisfy himself as to its genuineness. He may 
also, if he wishes, keep the same in his possession 
twenty-four hours before deciding whether or not he 
will accept it. This gives him an opportunity to ex- 
amine his account with the drawer and ascertain if 
the amount is correct ; but should he destroy the draft 
or refuse to return it to the owner, it will be presumed, 
by the law of some of the states, that he has accepted 
it. 

255. Conditional Acceptance. — The holder of a draft 
has no right to permit a conditional or qualified ac- 
ceptance of same, and in fact if he does, the drawer 
and endorsers are at once released from further lia- 
bility. The holder should insist on an unconditional 

10 



146 



PRESENTMENT FOR ACCEPTANCE 



acceptance or none, for then he can hold the drawers 
and endorsers if the drawee fails to pay the bill. 

256. Acceptance in Different Place. — If a collector or 
holder of a draft consents to the same being accepted 
payable at any other place than the city of the 
drawee's residence, it has the effect of releasing the 
drawer and endorsers, and the holder or collector will 
be held for its payment. If the place of payment may 
be changed by the drawee so as to make it payable iu 
a neighboring town, it may be changed to a greater 
distance, and this would be a material departure from 
the term of the instrument. 



No. 20. — Acceptance Which Releases Drawer and Endorsers 




257. What Acceptance Admits. — When any person ac- 
cepts a draft or bill he makes certain admissions by so 
doing, and these are sometimes very important. First, 
he admits that the signature of the drawer is genuine 
and this he can not afterwards deny, even in case it 
proves to be a forgery. Second, he admits that the 



PRESENTMENT FOR ACCEPTANCE 147 

drawer is a competent party of legal age and sound 
mind. 

258. Non-acceptance. — When the drawee refuses or 
neglects to accept a bill that has been properly pre- 
sented to him, the draft is said to be dishonored, and if 
it be a foreign bill it should be protested at once and 
notices sent to drawer and all endorsers. If it be an 
inland bill it is usually sufficient to simply send 
notices to the drawer and endorsers, but the safer way 
is to have the paper protested. In sending notices of 
non-payment or non-acceptance no particular form is 
necessary, but an ordinary business letter setting 
forth the facts is sufficient. Further details regard- 
ing protested notes and bills will be found in the next 
chapter. 



148 PRESENTATION FOR PAYMENT 

CHAPTER XVII 

PRESENTATION FOR PAYMENT 

259. Why Necessary — It should be remembered that 
the object in presenting a note or acceptance for pay- 
ment at maturity is not that you may hold the maker 
or acceptor in case of non-payment, for they would 
not be released even though you wait a number of 
years before presenting it, provided you did not wait 
until it was outlawed, but unless presentation is 
promptly made and in exact accordance with the law, 
the drawer of the draft, together with all endorsers, 
will be entirely released from any obligation in case 
of non-payment. 

260. By Whom. — Presentment for payment should 
be made by the holder or his legally authorized agent. 
If the holder dies before the paper becomes due, the 
presentment and demand for payment should be made 
by his legal representative within a reasonable time 
after his appointment. 

261. To Whom. — Presentment for payment should 
be made to the maker of the note or acceptor of a draft 
or his authorized agent. In case of death of the 
maker or acceptor, the presentment should then be 
made to his personal representative, if there be one, 



PRESENTATION FOR PAYMENT 149 

and, if not, it may be presented at the residence of the 
deceased. In case of a joint note or draft, present- 
ment should be made to all parties, but it is not abso- 
lutely necessary that it should be presented to all the 
parties on the day of maturity, although a reasonable 
effort should be made to do so. 

262 When. — Notes and bills must be presented for 
payment the very day they become due if the holder 
expects to look to the drawer or endorsers for payment 
in case the instrument is dishonored. The time cau 
not be either hastened or delayed a single day. If 
made before the day it is of no effect, and if made 
afterwards the holder must show some valid reason 
for the delay. Although payment must be demanded 
on the day of maturity, a holder has all the business 
part of the day on which the paper falls due in which 
to present it. The holder of a bank check should pre- 
sent it for payment or forward it for presentment 
within a reasonable time after receiving it, otherwise 
he can not hold the drawer if the bank should fail. 

Twenty-four hours is usually regarded as a reason- 
able time, and one who holds a check longer generally 
does so at his own risk. 

263. Demand Notes and Drafts. — Instruments drawn 
payable on demand are not, as a rule, allowed days of 
grace, but are payable upon presentation. They should 



150 PRESENTATION FOR PAYMENT 

be presented as soon as they are received, or at least 
within a reasonable time if the holder wishes to charge 
the endorsers or draAver in event of non-payment. 

264. Where — If a paper is made payable at some 
particular bank or business house, it should be pre- 
sented there for payment, but if no special place is 
named, it should be presented at the maker's office or 
residence. If payable in a certain town it is sufficient 
to present it at all the banks, provided the maker does 
not live in the town. A demand may be made on the 
street unless the maker objects to it as an improper 
place. 

265. How. — When a paper is payable at a bank, it 
is sufficient demand if the instrument is in the bank 
at maturity, so that any one authorized to do so may 
call and pay the same. 

If it is not payable at a particular place, the holder 
should se£k the payor and by an actual exhibition of 
the paper ask for payment. 

266. Nonpayment. — If there be no endorsers on a 
note it is not necessary to demand payment at matur- 
ity unless the holder wishes to do so. 

As stated before, the whole object of a prompt de- 
mand is to be able to hold all endorsers for payment 
in case the note is dishonored. 

267. Protest. — The endorsers of a negotiable paper 



PRESENTATION FOR PAYMENT 151 

have a right to insist that the holder of the instrument 
at maturity complies strictly with the requirements 
of the law as to the time, place, manner, etc., of the 
presentment and demand for payment. Therefore 
when payment has been refused the holder desires 
some official proof that he has performed faithfully 
all that the law demanded of him. 

The best proof he can furnish is a protest, which is 
usually made by a notary public and consists of a for- 
mal and solemn document in which the notary, for the 
holder, protests against being held for any loss on ac- 
count of non-acceptance or non-payment of the instru- 
ment. 

268. What the Protest Should Contain. — The formal 
certificate of protest made by the notary should con- 
tain the following information : 

1. Time of presentment. 

2. Place of presentment. 

3. Fact and manner of presentment, 

4. Demand of payment. 

5. Fact of dishonor. 

6. Name of person presenting it. 

7. Name of person 'to whom presented. 

8. Persons notified. 

9. When and how notified. 

269. When Protest Should be Made. — The demand and 



152 PRESENTATION FOR PAYMENT 

protest should be made in accordance with the laws 
of the place where the instrument is payable. The 
notary should present the bill or note himself on the 
day it falls due and demand payment. If payment is 
refused, he should make a record of all facts concern- 
ing the presentment in a book which is kept for that 
purpose. 

This record may be made on the same day the note 
is presented for payment, but the formal protest may 
be made later. 

270. When Protest is Necessary. — Every foreign bill 
of exchange or draft must be protested in case of non- 
acceptance or non-payment, as this is the only evi- 
dence admitted to show that the holder made proper 
demand for payment. 

271. When Protest is Not Necessary. — It is not abso- 
lutely necessary to protest an inland bill, or a promis- 
sory note whether foreign or inland, although it is 
quite customary to do so, but notice of non-payment 
should be given by the holder to all antecedent parties, 
provided the instrument is not protested. 

272. Notary Public. — A notary is a public officer ap- 
pointed by the governor of the state on petition, and 
is regarded as the proper official to protest notes or 
bills. It is also customary to have a notary take the 
acknowledgements of signatures to important docu- 



PRESENTATION FOR PAYMENT 153 

ments of any kind. In Nebraska and many other 
states the law requires that the date of the expiration 
of his commission shall be either engraved upon his 
seal or written upon every certificate he signs. 

His protest under seal is recognized in any state or 
foreign country, and is taken as conclusive evidence 
that the bill has been dishonored. 

If there be no notary in the locality where the bill 
is dishonored, any responsible person in the place may 
protest it in the presence of two or more reliable wit- 
nesses. 

273. Notice of Protest. — It is not necessary to send 
a copy of the protest to each endorser, but notice 
should be sent stating that the bill has been dis- 
honored. This notice may be given in person or sent 
by messenger or through the mails, but it must be 
done promptly, generally within twenty-four hours 
after the bill is dishonored. 

If a draft or note has passed through the hands of 
several persons of different localities, the notary is 
often unable to ascertain the address of each individ- 
ual endorser, and in that case it is customary to fill 
out a notice for each endorser and send all of them in 
one envelope to the last endorser ; he can retain his 
notice and send the balance to the next endorser; he 
will do the same and so on, each man being allowed 



154 



PRESENTATION FOR PAYMENT 



twenty-four hours in which to notify the party who 
endorsed it before him. 

274. "No Protest." — Many drafts have printed 
across the end of same the following words : "No pro- 
test. Detach before presenting." This is intended as 
private instruction to the bank presenting the draft 
for payment. It may mean that the account is con- 
sidered doubtful and the drawer does not care to pay 
the protest fees and thus add to his loss, or it may be 
that he does not want to embarrass the drawee in 
case he is unable to pay the draft. 

No. 21. — Draft with "No Protest" Attached 




275. Waiver. — Any or all endorsers may waive de- 
mand, protest, or notice of non-payment by so stating 
in the note. Many notes have this waiver printed on 
the face of same, and by this means much annoyance 
as well as the expense of protesting is avoided. 

276. Quasi-Negotiable Paper. — Quasi (qua-si) means 



PRESENTATION FOR PAYMENT 155 

having some resemblance to, and quasi- negotiable pa- 
per is one possessing some of the attributes of ne- 
gotiable paper but not all of them. They may well be 
said to occupy a position midway between common 
contracts and negotiable instruments. 

Among the most common forms of paper belonging 
to this class may be mentioned the Bills of Lading, 
Warehouse Receipts, Letters of Credit, and Receiv- 
er's Certificate. 

No. 22. — Notarial Protest 

State of Nebraska, ) 

> ss 
Hall County. ) 

On the tenth day of May, A.D. 1901, D. B. Williams, a notary 
public, duly appointed, commissioned, and qualified in and for 
the county aforesaid, and residing in the city of Grand Island, in 
said county, at the request of A. N. Palmer, went with the orig- 
inal note hereunto annexed, to the place of business of D. T. 
Ames and then and there presented the same to him and de- 
manded payment thereof, which was refused. Whereupon I, the 
said notary, at the request aforesaid, did protest, and by these 
presents do publicly and solemnly protest, as well against the 
maker and endorsers thereof as against all others with whom it 
doth or may concern for exchange, re-exchange, and all costs, 
damages, and interests already incurred, or that may hereafter 
be incurred by reason of the non-payment thereof. 

And thereupon, on the day aforesaid, I served notices on the 
maker and endorsers of said note respectively, notifying them 
that payment thereof had been duly demanded and refused, that 
the same had been protested for non-payment, and that the hold- 
ers looked to them for payment. Said notices were served in the 
following manner: 

On the following named parties, by depositing such notices in 
the post-office at Grand Island, Neb., postage prepaid, and di- 
rected as follows: 

A notice for W. D. Waller, directed to Taylorville, 111. 



156 PRESENTATION FOR PAYMENT 

A notice for I. J. Glass, directed to Sharpsburg, 111. 
A notice for K. M. Campbell, directed to Lewiston, 111. 
Each of the above named places being the reputed place of resi- 
dence of the person to whom this notice was sent. 

In Witness Whereof, I have hereunto set my hand and af- 
fixed my notarial seal at Grand Island, in said 
[seal] county and state, the day and year first above 

mentioned. 

D. B. Williams. 
Notary Public. 
My commission expires December 9, 1903. 

No. 23. — Notice of Protest 

Take Notice: Grand Island, Neb., -May 10, 1901. 

That a note made by D. T. Ames, dated January 3, 1899, for 
$275.50, payable May 10, 1901, and endorsed by you, was this 
day duly presented for payment and payment thereof was duly 
demanded, and refused, and the same was protested for non- 
payment. 

You are hereby notified that the holders look to you for pay- 
ment, damages, interests, and costs. 
Respectfully, 

D. B. Williams, 
To W. D. Waller, Notary Public. 

Taylorville, 111. 



MISCELLANEOUS ITEMS 157 



CHAPTER XVIII 

MISCELLANEOUS ITEMS PERTAINING TO NEGOTIABLE 
I 

PAPER 

277. Bill of Lading.— A bill of lading is a written 
instrument given by a common carrier to a shipper, 
certifying that the goods therein named and de- 
scribed have been received and will be delivered at 
their destination according to the terms set forth in 
the bill. It is a contract, as well as a receipt, and 
while it may be transferred by endorsement, the pur- 
chaser does not receive any better title to the goods 
than the seller had. In this particular it is unlike a 
negotiable paper. 

278. Warehouse Receipts. — This is simply a receipt 
issued by the owner of a warehouse or his agent stat- 
ing that certain goods have been stored with him sub- 
ject to his order. 

It is very similar to a bill of lading, and may be 
transferred from one person to another, but like all 
receipts it may be explained or denied by proper evi- 
dence, even though it has passed into the hands of an 
innocent holder. It therefore can not be regarded as 
a negotiable paper unless it is made so by statutory 
regulation. 



158 MISCELLANEOUS ITEMS PERTAINING 

No. 24. — Warehouse Receipt 



Field, Leiter & Co. 
No Chicago, Dec. 12, 1903. 

Received in store from car 1032 C. B. & Q. four 
hundred ninety seven 27 /eo bushels of No. two Wheat 
subject only to the order hereon of Henry W. Ban- 
ner & Co. on the surrender ©f this receipt and the 
payment of charges. This grain is subject to our ad- 
vertised rates of storage. 

It is hereby agreed by the holder that the grain 
herein mentioned may be stored with other grain 
of same quality by inspection. Loss by fire or heat- 
ing at owner's risk. 

Field, Leiter & Co. 
Bushels 497, Lbs. 27 



279. Travelers' Letters of Credit. — A letter of credit is 
a written request from one bank asking another bank 
to pay the person named a certain sum, or to cash his 
draft for the amount mentioned in the letter. 

If the request is addressed to several correspondents 
it is called a circular letter of credit. 

These letters are but little used except when travel- 
ing in foreign countries, and then they become almost 
a necessity. 

If you wish to take a trip to any foreign country 
you may deposit in your bank the amount you expect 
to use, and receive for the same a letter of credit. This 
allows you to draw money through the banks named in 
the letter just as you need it, and in such amounts as 



TO NEGOTIABLE PAPER 159 

you may desire, provided the total does not exceed the 
sum named in the letter. 

No. 25. — Face of Letter of Credit 



Kouotze Brothers 



m 9810 



ExpMpg-^yi^ /6uJyO/ (yj 







'//iTfT/t'at/tcj qficacA. />/rymm/'m/o/ 









< Z&(%£l^iuy/uw//vU) cKou^vka^ <3$zot'A<yix>. 



280. Book of Indication. — Formerly letters of credit 
contained the signature of the accredited person for 
the purpose of identification, but the more modern 
method is to issue a special book for that purpose 
called the book of indication. 

This book contains the duly authenticated signa- 
ture of the person who is to draw the money, and it 



160 



MISCELLANEOUS ITEMS PERTAINING 



also refers to the letter by number and otherwise de- 
scribes it. 

No. 26. — Back of Letter of Credit, Showing Amounts Paid on 

Same 



II 



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& ^ o *»" 



u ^ o* *» V, ^ ^ 3> ,S> 



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281. Two or More May Draw on Letter. — When sev- 
eral persons are traveling together and paying their 
expenses from the same letter of credit, as in case of 
a family or party, the letter may be issued, if desired, 
so that any member of the party may draw the money. 



TO NEGOTIABLE PAPER 



161 




In that case the book of indication must contain the 
signature of each person named in the letter. 

Where the letter is issued in the name of one per- 
son only in the family or party, it might prove very 

ll 



16.2 MISCELLANEOUS ITEMS PERTAINING 

embarrassing and cause much delay if that person 
should meet with an accident or become incapacitated 
in any manner. 

282. Advantage of Two=part Letter. — It will be seen 
from the above that it requires two documents to con- 
stitute a letter of credit: first, the letter itself; sec- 
ond, the book of indication, or identification. 

In case either of them is lost or stolen, no one can 
draw the money on same without the other, and if they 
are not carried together there is but little chance of 
them both falling into the hands of the same person. 

While the owner can not draw money on one of the 
documents alone, either of them in case the other is 
lost, would no doubt serve for temporary credit until 
arrangements could be made for funds. 

283. How to Draw floney on a Letter. — Most of the 
letters of credit are drawn in pounds sterling, as Lon- 
don is said to be the clearing house of the world, and 
bankers in all parts of the globe, as a rule, prefer to 
buy drafts on some city in England. 

The letter contains the name of one bank in each 
of the principal cities in the world, and when a trav- 
eler wishes to draw some money he calls upon the 
bank named, in whatever city he may be at that time, 
shows his letter, fills out a draft for, say, twenty 
pounds sterling, and receives for it the equivalent in 



TO NEGOTIABLE PAPER 



163 




164 MISCELLANEOUS ITEMS PERTAINING 

the currency of the country in which he is then trav- 
eling. 

284. Cost of Letters of Credit, etc. — In addition to the 
amount named in the letter the purchaser must pay 
the usual charge of about one per cent commission. 

Domestic letters of credit to be used by travelers in 
the United States can also be had when desired at 
about the same rate. 

285. Travelers' Cheques — Some of the leading ex- 
press companies issue what they call Travelers' 
Cheques. They are intended for the use of travelers 
in this and foreign countries, and on each check is 
printed its exact value, in the currency of the princi- 
pal foreign countries. They are issued in denomina- 
tions of $10, $20, $50, $100, and $200, and it is 
claimed by the express companies issuing them that 
they are cheaper than Letters of Credit and are more 
convenient in many ways. 

286. Bank Drafts. — A bank draft is simply a check 
drawn by one bank on another bank. It is sometimes 
called "Exchange." Most banks keep money depos- 
ited in one of the New York City banks, and sell drafts 
on same to merchants and others, who use them ex- 
tensively in making remittances from one city to an- 
other. Drafts on New York banks are usually con- 
sidered the same as cash any place in the United 



TO NEGOTIABLE PAPER 



165 





States. The pur- 
chaser of a draft 
should ' always 
have it drawn 
payable to the 
order of his own 
name, then he 
can endorse it 
over to the per- 
son to whom he 
sends it, who in 
turn will have to 
endorse it before 
he can get it 
cashed. 

287. Money Or- 
ders. —The post- 
offices in all 
parts of the 
United States 
and all express 
companies sell 
money orders, 
which are also 
extensively used 
in making re- 
mittances from 



160 



MISCELLANEOUS ITEMS PERTAINING 



one place to another. They 
are perfectly safe and are 
a great convenience to the 
people in the localities 
where there are no banks; 
besides, if the amount is 
small, the cost of a money 
order is less than that of a 
draft. 

288. Receiver's Certifi= 

cate Certificates issued 

by a receiver appointed by g 
the court, such as a re- D 
ceiver of a suspended bank, 3 

PL, 



are not regarded as negoti- 
able, although they gen- 
erally use the negotiable 
words. There is not an un- 
conditional promise to pay 
a certain sum, but the 
amount mentioned is to be 
paid only on condition that 
enough funds are realized 
from the assets to meet all the obligations. The fact of 
tins condition renders the certificate non-negotiable. 
289. Collateral Security. — By collateral security is 




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TO NEGOTIABLE PAPER 167 

meant anything that is pledged or deposited as secur- 
ity for the payment of a debt. Notes, mortgages, 
stocks, bonds, etc., are much used in this way. 

You go to the bank to borrow f 1,000 on your note, 
and as security you leave with the bank a note against 
Brown for $1,500. Should this note against Brown 
become due before the maturity of the one you gave 
the bank, it is the duty of the bank to collect the same 
and apply it on the note you have given them, the bal- 
ance, if any, to be turned over to you. 

Any one who holds notes or drafts as collateral se- 
curity is responsible if he fails to make the necessary 
demands for payment or acceptance, or if he allows the 
bill to become outlawed. He must also send the proper 
notices to all drawers or endorsers. 

290. When a Note Draws Interest. — The general rule 
of law is that no negotiable bill or note draws inter- 
est until after maturity unless it be so stated in the 
instrument. After it is due it will draw interest at 
the legal rate unless a higher rate is named in the 
contract itself. 

291. Extending Time of Payment. — The holder of a 
note is not obliged to bring suit as soon as the paper 
becomes due, but should he make an agreement based 
upon a valuable consideration to extend the time of 
payment for even one day beyond maturity, by that 



168 MISCELLANEOUS ITEMS PERTAINING 

act he releases all signers and endorsers of the note 
except the one with whom he made the agreement. 
To illustrate : you hold a note signed by A as principal 
and B and C as surety. On the day it falls due Mr. A 
comes in and says he can not ship his cattle for thirty 
days but will pay the interest in advance if you will 
accommodate him by giving another month's time. 
You grant him this favor, and by so doing entirely re- 
lease B and C from any further obligation on the note. 
On the other hand, if you had allowed the note to run 
a year or more past due (just so it did not become out- 
lawed) B and C would not have been released so long 
as you did not change the terms of the note by making 
a definite agreement to give longer time. 

292. Partial Payment. — When a partial payment is 
made on a note the amount should be endorsed on the 
back of the instrument at once. This should be done 
in the presence of the payer. The endorsement need 
not be signed and the following form will answer: 
"Paid on the within note, January 10, 1900, Fifty Dol- 
lars." 

The payer should also take a receipt for the amount, 
as he would then have proof of the payment in case 
the note was lost or destroyed. A receipt alone would 
not be sufficient, however, in case the note or bill fell 
into the bauds of an innocent purchaser before ma- 



TO NEGOTIABLE PAPER 169 

turity, as such purchaser could enforce payment in 
full without regard to the amount of previous pay- 
ments. 

293. Payable to Fictitious Person. — A note or check 
payable to a fictitious person is payable to bearer. If 
it be made payable to A & B it is payable to either of 
them, but if payable to A or B it is not negotiable be- 
cause there is an uncertainty and it is payable to 
neither. 

294. Destroyed or Lost. — In case a negotiable paper 
is lost or destroyed by accident, the owner can usually 
collect it by proving contents of the same and giving 
an indemnity bond for twice the amount of the lost 
paper. 

This is required as a matter of protection and secur- 
ity to the person who pays the note, so that in case the 
note should ever be presented to him by an innocent 
holder he would not have to lose the amount already 
paid. The loss of a note or bill, however, does not ex- 
cuse one from protesting it for non-payment. 

295. Identification. — Strangers must be identified be- 
fore they can cash any kind of negotiable paper, and 
sometimes one suffers great inconvenience and much 
embarrassment on this account. For example, sup- 
pose yourself to be in Boston, a total stranger, and 
out of money. You write to a friend and he sends you 



170 MISCELLANEOUS ITEMS PERTAINING 

a bank draft, but no one will cash it for you because 
they have no means of knowing whether or not it is a 
forgery. Should he send you the money by registered 
letter the postmaster Avould not deliver it to you until 
you found some one he was acquainted with to identify 
you. If sent by express it would be the same way, 
for the express agent could not tell whether you were 
the person to whom the package was addressed or not. 
Banks generally refuse to cash drafts or checks for 
strangers unless some one known to the bank en- 
dorses the paper, which of course amounts to a guar- 
anty that the paper is good and will be paid promptly. 
The draft may of course be left with any bank for col- 
lection, but you will be at the inconvenience of hav- 
ing to wait until their reply is received. 

296. Alterations of Notes. — In case there is any ma- 
terial alteration made in the note by the holder, it is 
rendered entirely void as to all persons except those 
who consented to the change. It has been held to be 
a material alteration to change the rate of interest by 
making it either larger or smaller than it originally 
was; b}^ changing the date of payment, altering the 
amount payable, place of payment, removing the name 
of one of the makers or adding another name as 
maker; but in fact any change that materially affects 
the paper is regarded as an alteration. In order that 
an alteration be material, it is not necessary that it be 



TO NEGOTIABLE PAPER 171 

done with intent to cheat or defraud. In fact, a large 
majority of them are innocently made with the knowl- 
edge and sanction of the holder of the instrument. 

297. Non=Negotiable Note. — A non-negotiable note is 
one that can not be transferred from one person to an- 
other so as to give the holder the right to sue on it in 
his own name. Of course a non-negotiable note may 
be sold or assigned, but the buyer takes it with all the 
defenses that existed against it in the hands of the 
original holder, and should he sue on same it must be 
done in the name of the original holder. Non-ne- 
gotiable notes are not allowed days of grace. 

Any of the following provisions in a note will 
usually render it non-negotiable: When it is drawn 
] .arable to "A B/' "A B only,' 1 "to the order of A B, 
trustee/' "to the order of the estate of A B, deceased,'' 
when it provided that a penalty or attorney fee shall 
be paid in case the note is sued or not paid at matu- 
rity, when payable to "A B or order" and is not 
endorsed by A B, when it contains an agreement to 
renew at maturity, when it is past due, when an inter- 
est payment is past due although the principal may 
not be due, or when the note contains any stipulation 
which embarrasses its free circulation. 

In most of the states one who endorses a non-ne- 
gotiable note is held to incur no liability. 



172 MISCELLANEOUS ITEMS PERTAINING 

298. The Consideration in Notes and Bills — It is cus- 
tomary in negotiable paper to refer to the considera- 
tion by the words "for value received/' but this is not 
really necessary as the law presumes that the note or 
bill would never have been given except for value. 

The consideration may, however, be disproved by 
competent evidence so long as the note or bill remains 

NO. 31. NOX-XEGOTIAGLE NOTE 



9.0.jg*4J&*^ 





in the possession of the original holder, but, as before 
stated, when the note is purchased by an innocent 
party for a valuable consideration before maturity 
and in due course of business, the consideration can 
not then be questioned. 

299. Law of Place. — The general rule is that the law 
of the place where a negotiable paper is payable will 
be the law that governs in collecting it. For example, 
if you live in Nebraska and receive a note from Mr. 
B, who lives in Kansas, it will be necessary to conform 
to the laws of Nebraska in regard to the protest, 



TO NEGOTIABLE PAPER 173 

notice, rate of interest, etc., provided the note is made 
payable in Nebraska ; but if made payable in Kansas 
then the law of that state will govern. 

If a note is made in Nebraska without designating 
the place of payment, it is payable and may be de- 
manded any place, but will still be a Nebraska note. 

A contract which is intended to evade the law will 
not be upheld ; for example, a note made in Nebraska 
can not draw more than ten per cent interest; but ia 
order to secure a higher rate it might be made payable 
in Colorado, where there is no limit to the rate 
charged. If it could be shoAvn that the object Avas to 
avoid the law, and that the intention was to collect 
it in Nebraska, the effect would be the same as if the 
note had been drawn payable in Nebraska. 

300. Ambiguous Instrument. — It sometimes happens 
that an instrument is so poorly drawn, through ig- 
norance or inexperience, that it is next to impossible 
to determine whether it is intended to be a note or a 
draft, and in cases of this kind the holder may regard 
the bill as either. The following is a good illustration 
of what is called an ambiguous or irregular instru- 
ment : 



174 MISCELLANEOUS ITEMS PERTAINING 

301. I O U. — As a rule, an obligation must contain 
an absolute promise before it Avill take the character 
of negotiable paper. If you give me a paper contain- 
ing the following : "I O U $100" and sign your name 
to it, the law would not generally regard it as a ne- 
gotiable note, but it would be simply the acknowl- 
edgement of a debt and would be binding as between 
the original parties. 

No. 32. — Ambiguous Instrument 




302. Read Before Signing. — Always read a paper 
through carefully before signing, no matter how much 
time it requires to do so. If it be an important in- 
strument it is a good plan to take it home with you 
over night so that you may consider it carefully. Some 
people are afraid they will be regarded as inexperi- 
enced if they stop to read a document before signing 
it ; but in fact just the opposite is true, for the more ex- 
perienced a man is the more carefully he scrutinizes 
every paper before putting his signature to it. 






TO NEGOTIABLE PAPER 175 

« 

303. Be Prompt. — The importance of being prompt 
in paving notes and other obligations at maturity can 
not be overestimated. Notes and other bills should be 
paid when due, but of course that is not always possi- 
ble, and here is where many good people get the name 
of being unreliable and dishonest. They think there is 
no need of going to see the holder of the note, or of 
writing to him if he lives at a distance, Avhen they 
have not the money to pay the bill; but this is a great 
mistake, for if they neither call nor write to him, he 
has good reason to suppose they do not intend to pay. 

The proper thing to do when you are unable to meet 
a promised payment is to see the party or write to him 
immediately, giving a full explanation, telling him 
frankly your situation and stating as nearly as possi- 
ble when you expect to be able to pay the bill. If this 
suggestion be carried out promptly, and with a show 
of good faith, an extension of time will be cheerfully 
given in nearly every case, and your reputation will 
not suffer by the transaction. 



176 MISCELLANEOUS ITEMS PERTAINING 

NEGOTIABLE PAPERS 

REVIEW QUESTIONS 

Define negotiable paper. 

May a note be transferable and yet not be negoti- 
able? 

Name the necessary elements of a negotiable paper. 

Who are the original parties? 

Who are the subsequent parties? 

Is a note good if signed with a lead pencil? 

If a note is payable in wheat, may it be trans- 
ferred? 

How should the signature be affixed? 

What are negotiable words? 

What is meant by saying a note must be payable 
absolutely? 

If any contingency exists, of what kind must it be? 

Is a note without date valid? 

If no time of payment is stated, when is the paper 
supposed to mature? 

Do misspelled words affect the validity of the note? 

Is there any real difference between a draft and jl 
bill of exchange? 

How many parties are there to a draft? 

Distinguish between a foreign and inland bill of 
exchange. 



TO NEGOTIABLE TAPER 177 

What is a promissory note? 

What is a joint and several note? 

Define an accommodation note. 

Define a judgment note. 

What is a check? 

What is meant by post dating? 

What is an overdraft? 

If a forged check is paid by the bank, who is the 
loser? 

What is a certified check, and what is its object? 

In what way may checks be made to answer as 
receipts? 

What is a certificate of deposit? 

Can payment of a check be stopped? 

What is an endorsement? 

What is its object? 

Where is it made? 

Xame five of the most common forms of endorse- 
ment. 

If you endorse a note "without recourse" and it 
is afterwards shown that the maker is a minor, are 
you liable for payment to the person you transferred 
it to? 

In what order are endorsers liable? 

What are some of the legal rights of endorsers? 



12 



178 MISCELLANEOUS ITEMS PERTAINING 

Who is an innocent purchaser of a note? 

Can the finder of a note or bill enforce collection 
of same? 

What risk does a buyer take in purchasing a note 
after maturity? 

What are days of grace? 

Is grace allowed on all kinds of papers? 

When the last day of grace falls on Sunday when 
will the paper mature? 

What are legal holidays? 

Do we have any national holidays? 

What is an acceptance? 

When should a draft be presented for acceptance? 

Who should present it? 

To whom should it be presented? 

Are there any excuses for delay in presenting a 
draft? 

What is a conditional acceptance? 

What effect does this have on the drawer and en- 
dorsers? 

What should be done in case of non-acceptance? 

What is meant by protesting a bill? 

Who is the proper person to protest it? 

What is meant when the maker states in the note 
that he waives demand, protest, and notice of protest? 
What is a quasi-negotiable paper? 



TO NEGOTIABLE PAPER 179 

Name a few belonging to that class. 

What is a bill of lading? 

What is a warehouse receipt? 

What is a letter of credit? 

What is a receiver's certificate? 

Define collateral security. 

Can the owner collect a note or bill if it be ac- 
cidentally destroyed? 

When does a note draw interest? 

Must strangers be identified when they wish to 
cash drafts or checks? 

What is an alteration of a paper? 

Define non-negotiable paper. 

How is the consideration of a negotiable paper 
expressed? 

What is meant by law of place? 

What is an ambiguous instrument? 

Would the following be regarded as a negotiable 
note: "I O U $100. John Smith''? 

What can you say about the importance of prompt- 
ness in attending to your obligations? 



180 INTEREST 



CHAPTER XIX 

INTEREST 

304. Definition.- — Interest may be defined as the 
price paid for the use of money or compensation for 
the detention of a debt. 

This definition is not technically correct, for in its 
strictest sense interest is simply the use of money; 
yet it is better to adopt the first definition, as that rep- 
resents the more common acceptation of the term. 

305. In the Dark Ages. — In the early days of the 
world's history it was regarded as morally wrong to 
charge interest on money loaned, and the law pro- 
hibited the lender from demanding or receiving any 
interest whatever. This of course discouraged the 
loaning of money and kept commerce at the lowest 
ebb ; but later, when the clouds of superstition began 
to roll back and men became more liberal in their 
views, these foolish ideas were swept aside, and com- 
merce immediately started forward at a rapid pace. 
To-day if the loaning of money should cease, the 
wheels of trade would be instantly blocked, and the 
complex business of the nations would be completely 
paralyzed. 

306. Legal Rate. — Each state regulates for itself the 



INTEREST 181 

rate of interest which shall be lawful within its bor- 
ders. It generally fixes two rates, one called the legal 
rate the other the contract rate. The legal rate is the 
one allowed by law, and the contract rate may be col- 
lected if specifically mentioned in the agreement. 

To illustrate : a note which reads "I promise to pay 
A B twenty dollars with interest/' would draw 7 per 
cent in Nebraska, as that is the legal rate, but if the 
note reads "I promise to pay A B twenty dollars with 
ten per cent interest,'' this rate could be collected, as 
ten per cent is the contract rate allowed by the stat- 
utes. Any rate less than 10 per cent may of course 
be contracted. 

307. On What the Rate of Interest Depends. — Any rate 
of interest agreed upon may be charged provided it 
does not exceed the limit fixed by law, but it is very 
natural that the borrower should wish to contract at 
the lowest possible rate, while the lender is anxious to 
receive the highest rate. It is fortunate for society 
that neither the borrower nor the lender is able to dic- 
tate the rate of interest, this being left to the higher 
law of supply and demand. If the lender has a large 
amount of money on hand and no one wants to borrow 
it, his income is entirely cut off and he is compelled 
to lower the rate of interest as an inducement to the 
borrowers. On the other hand, if he has but little 



182 INTEREST 

money and many people are wanting to borrow it, the 
tendency is to raise the rate of interest, as each bor- 
rower is in fact a bidder against the others. 

308. When Interest is Allowed. — Interest is allowed 
on all forms of indebtedness when it is expressly 
stated in the contract that interest is to be paid. It 
is also allowed on all debts Avhich are past due, and 
such claims will draw interest at the legal rate from 
the date of maturity until they are paid. Example. — 
You buy a large bill of goods with the agreement that 
the same will be paid January 1, but you let the mat- 
ter run until July 1, or six months after maturity, 
therefore you must pay interest at the legal rate from 
January 1 to July 1. 

Negotiable paper does not bear interest until after 
maturity unless it is so stated in the instrument itself. 

309. Law of Place. — Contracts will usually draw in- 
terest according to the law of the place where they are 
to be performed. If no place of performance is speci- 
fied or implied, the law of the place where it is made 
will govern. 

310. Compound Interest. — The law looks with much 
disfavor upon compound interest, and while a promise 
to pay it does not generally invalidate the contract, 
yet such agreement will not usually be enforced by 
the courts. 



INTEREST 183 

311. Usury. — Usury may be defined as taking more 
than the lawful rate of interest, that is, more than the 
law allows. 

312. Penalty for Usury. — The statutes of most of the 
states regulate the rate of interest Avhich may be 
legally charged for the loan of money, but some of 
them leave the matter entirely to the contracting par- 
ties. In the last named class there is no such thing as 
usury, for any rate agreed upon may be collected. 

313. The Object of Usury Laws. — The object of usury 
laws is to prevent those who loan money from oppress- 
ing the borrowers by charging an unreasonable rate 
of interest. Many poor people are at times compelled 
to borrow money, and it is thought that their neces- 
sity would make it easy for the lender to extort a high 
rate of interest from them. On the other hand, it is 
claimed by many that the rate of interest charged 
does not depend upon the law, but upon the supply 
of money as compared with the demand for it, and 
this argument seems to be supported by the fact that 
in some of the states where the usury laws have been 
entirely abolished the rate of interest charged is as 
low as in states where the most severe penalties are 
enforced. 



184 



INTEREST 
USURY TABLE 



STATES AND 
TERRITORIES 



Alabama 

Arizona 

Arkansas 

California 

Colorado 

Connecticut 

Delaware 

Dist. of Columbia 

Florida 

Georgia 

Idaho . . . 

Illinois 

Indiana . . , 

Indian Territory. 

Iowa 

Kansas 

Kentucky 

Louisiana 

Maine 

Maryland 

Massachusetts . . . 

Michigan 

Minnesota 

Mississippi 

Missouri 

Montana 

Nebraska 

Nevada 

New Hampshire. 



LEGAL 
RATE 



per cent 
per cent 
per cent 

per cent 
per cent 

per cent 
per cent 

per cent 
per cent 
per cent 

per cent 
per cent 
per cent 

per cent 

per cent 



6 per cent 



6 per cent 



per cent 
per cent 



6 per cent 



per cent 
per cent 
per cent 
per cent 
per cent 
per cent 
per cent 

per cent 
per cent 



CONTRACT 
RATE 



any 
10 

any 
any 



10 



per cent 
per cent 
per cent 

per cent 
per cent 

per cent 
per cent 

per cent 
per cent 
per cent 

per cent 
per cent 
per cent 

per cent 

per cent 



10 per cent 



6 per cent 



8 
any 



per cent 
per cent 



6 per cent 



any 

10 

10 

8 

any 

10 



my 




per cent 
per cent 
per cent 
per cent 
per cent 
per cent 
per cent 

per cent 
per cent 



PENALTY FOR USURY 



Forfeiture of all interest 

None 

Forfeiture of principal 
and interest 

None 

None. Except pawn- 
brokers 

None 

Double amount of princi- 
pal 

Forfeiture of all interest 

Forfeiture of all interest 

Forfeiture of excess of 
interest 

Forfeiture of interest 

Forfeiture of all interest 

Forfeiture of excess of 
interest over 6 per cent 

Forfeiture of principal 
and interest 

Forfeiture of all interest 
and costs, and 10 per 
cent of principal 

Forfeiture of double ex- 
cess of interest over 10 
per cent 

Forfeiture of excess of 
interest 

Forfeiture of all interest 

None for loans of $200 or 
more 

Forfeiture of excess of 
interest 

None 

Forfeiture of interest 

Forfeiture of contract 

Forfeiture of interest 

Forfeiture of all interest 

None 

Forfeiture of all interest 
and costs 

None 

Forfeiture of three times 
theexcessof theinterest 



INTEREST 
USURY TABLE— Concluded 



185 



STATES AND j legal 
TERRITORIES ' rate 



CONTRACT 
RATE 



PENALTY FOR USURY 



New Jersey- 



New Mexico i 6 

10 New York.... 



North Carolina. 
North Dakota . . 
Ohio 



Oklahoma 
Oregon . . . 



Pennsylvania. 



Rhode Island .... 
Sonth Carolina . . 

South Dakota . . . 
Tennessee 



Texas 
Utah.... 

Vermont 



Virginia . . . 
Washington 



West Virginia .... 



Wisconsin 
Wyoming 



Ontario 
Quebec 



per cent 
per cent 

per cent 

per cent 

per cent 

per cent 

per cent 
per cent 

per cent 

per cent 
per cent 

per cent 
per cent 

per cent 
per cent 
per cent 

per cent 
per cent 



cent 



cent 



7 

6 per cent 



6 per 
12 per 

6 per 

6 per 

12 per 

8 per 

12 per 
10 per 

6 per 

any T per 
8 per 

12 per 
6 per 

10 per 

any per 

6 per 

6 per 
12 per 

6 per cent 



Forfeiture of all interest 

and costs 
Forfeiture of twice the 

amount, and fine of 

! $ioo 

cent Forfeiture of contract ; 

I $1,000 fine ; six months 

I imprisonment 
cent Forfeiture of double 

amount of interest 
cent Forfeiture of double the 

interest 
cent Forfeiture of excess of 

i interest over 6 per cent 
cent Forfeiture of interest 
cent Forfeiture of interest, 

principal, and costs 
cent 'Forfeiture of excess of 

| interest 
cent None 
cent Forfeiture of double ex- 



per cent 
per cent 

per cent 
per cent 



10 per 
12 per 

any per 
any per 



cess 

cent Forfeiture of interest 

cent Forfeiture of excess of 
[ interest 

cent Forfeiture of all interest 

cent None 

cent Forfeiture of excess of 
| interest 

cent Forfeiture of interest 

cent Forfeiture of double il- 
legal interest 
Forfeiture of excess of 
interest 

cent Forfeiture of all interest 

cent Forfeiture of all interest 
and costs 

cent None 

cent None 



10 Demand loans with collateral security may bear any rate agreed upon in 
writing, provided the loan be $5,000 or more. 



186 INTEREST 

314. What Constitutes Usury. — In order to establish 
a case of usury it must be shown that there was an 
unlawful or usurious intent. If you make a miscalcu- 
lation and collect more interest than the law allows, 
it can not be said that you are a usurer, but if you 
know nothing of the law and charge a higher rate 
than is legal you will be held as guilty. 

315. Mistake of Fact. — It may be well to note at this 
point that the law makes a great distinction between 
a mistake of fact and a mistake of law. As a rule it 
will not allow a person to be injured on account of a 
mistake as to the facts, but everybody is supposed to 
know the law, and if he makes a mistake as to what 
the law is, he will not generally be excused. 

To illustrate : suppose I borrow from you f 900 for 
one year at 10 per cent interest, and you calculate the 
interest to be f 108 and I pay the same. While this is an 
overcharge of $18 it is not usury, as it is a mistake of 
fact, but of course you would have to return the $18 
to me. 

On the other hand, suppose neither one knows the 
usury laws of Nebraska, and I borrow $900 of you at 
12 per cent. This would be a mistake of law and 
would be held as usury, for the contract rate is only 
10 per cent. 

316 Efforts to Conceal Usury. — Those who make a 



INTEREST 187 

practice of charging usury oftentimes resort to niany 
kinds of subterfuges in order to conceal the facts. A 
very common plan, and perhaps the most difficult to 
prove, is where the lender pretends to act for a second 
party. For example, you go to Mr. B, a loan agent, to 
borrow $50. He informs you that he has no money to 
loan, but a friend of his will let you have the money 
at 10 per cent interest provided he (Mr. B) endorses 
the note with you, and for this endorsement he will 
charge you f 5. 

This can not be regarded as usury unless it can be 
shown that there is a full understanding between Mr. 
B and his friend and they simply use this method to 
avoid the usury law. 

317. Interest in Advance. — Some people seem to 
think they can avoid the penalty of usury by collect- 
ing the interest in advance, but such is not the case, 
although it may be a little more difficult of proof. It 
is not regarded as usury, however, to collect interest 
in advance provided it does not exceed the rate named 
bv law. 



188 INTEREST 

INTEREST AND USURY 

REVIEW QUESTIONS 

Define interest. 

AVhat is the legal rate? 

What is the contract rate? 

On what does the rate depend? 

When is interest allowed? 

Can compound interest be collected? 

Define usury. 

What is the penalty for usury in your state? 

What is the object of usury laws? 

Do they answer the purpose for which they are 
made? 

What constitutes usury? 

What is the difference between a mistake of fact 
and a mistake of law ? 



SALE OF PERSONAL PROPERTY 189 

CHAPTER XX 

SALE OF PERSONAL PROPERTY 

318. Personal property may be defined as any kind 

of movable property, and it consists of all forms of 
value not coming under the title of real estate. It is 

sometimes designated as chattels. 

319. Kinds of Personal Property. — Personal prop- 
erty is of two kinds, things in action and things in 
possession. In the law books they are generally called 
choses (shoses) in action and choses in possession. 

If you say you have things in possession it means 
that you not only have in your own right the title to 
the articles in question, but you also have actual pos- 
session of same ; but if you say you have things in ac- 
tion, it refers to the personal property which you own 
but have not the possession of, such as notes, accounts, 
etc. 

320. A sale is a contract and must of course have 
all the elements of a contract. It consists of the 
transfer of the ownership of goods or chattels from 
one person to another- for a specified sum of money. 
It is not a sale if goods be exchanged for other goods, 
but it is then a barter or trade. 

321. Parties. — The parties to a sale are the buyer 



190 SALE OF PERSONAL PROPERTY 

and seller, or, as they are sometimes called, the vendor 
and vendee. Any one who is competent to make con- 
tracts in general is competent to make a sale. 

322. Title. — The rule of law is that no man can sell 
or convey to another a better title to property than he 
himself possesses, and if the seller has no title the 
buyer will receive none. So it becomes a very impor- 
tant matter in buying anything from a stranger to 
know that he has a good title to the property. There 
is only one exception to this rule, and it is discussed 
under negotiable papers. 

323. Contract of Sale and to Sell. — It is well to notice 
the difference between an actual sale and a contract to 
sell at a future date. Every genuine sale is an exe- 
cuted contract, although the payment or delivery of 
goods may be deferred to some future time; but a con- 
tract to sell is an executory contract and consists 
merely of an agreement to sell at a specified future 
time. It does not transfer the title to the property 
or confer upon either party the rights or obligations 
of a sale. Example. — You offer me $100 for a horse 
and I accept. This is a sale, and the contract is ex- 
ecuted or completed and the animal belongs to you, 
but if you contract with me now to buy my horse next 
April for $100 that would be an executory contract or 
one to be performed in the future. If the horse should 



SALE OF PERSONAL PROPERTY 191 

die before April it will be my loss, not yours, as the 
title is still vested in me. 

324. Sale to be Followed by Delivery. — If nothing is 
said to the contrary, the law presumes that it is the in- 
tention of the parties that the sale should be immedi- 
ately followed by the payment of the money and deliv- 
ery of the goods. Sometimes the contract provides 
that the delivery is to be made at a particular time and 
place, but if no term of credit is agreed upon the seller 
may insist upon receiving full pay for the goods be- 
fore he gives possession of them. Should the buyer 
refuse or neglect to pay for the goods immediately on 
completing the bargain or at the time agreed upon, 
the seller may rescind the sale at once. 

325. Subject Matter. — This is the property which is 
bought or sold, and as a general rule a person compe- 
tent to contract is at liberty to dispose of any prop- 
erty he may possess, but it must have an actual or po- 
tential existence although it need not be in the seller's 
possession. 

326. Actual existence. — If the article has an actual 
existence, even though it be in the hands of an agent 
in another locality, a sale may be made. If, however, 
the thing once existed, but at the time of the agree- 
ment it had been destroyed, the sale is void for the 
reason that the seller, having no title, can not transfer 



192 SALE OF PERSONAL PROPERTY 

one to the buyer. You sell to me a stock of goods for 
$3,000 and I pay you the money and take a bill of sale, 
but we afterwards learn that the stock was burned 
an hour before the sale. It is clear that you did not 
transfer to me a title to the goods, for you had none 
yourself, and I am entitled to have my money re- 
turned. When the thing sold is only partially de- 
stroyed there is some question as to whether the sale 
is valid as to the goods remaining ; but the better opin- 
ion seems to be that the buyer has the right of option 
to either take the goods remaining at a reasonable 
price or dissolve the contract in toto. 

327. Not Yet in Existence. — Formerly no sale was 
valid unless the thing sold was at the time actually in 
existence; but in later years the law has been more 
liberally construed in regard to this matter, until now 
the expectation or hope of profits based upon existing 
rights may be the subject of a sale; for example, the 
grain one expects to reap from a growing crop, or 
fruit from an orchard, or the wool to be clipped from 
certain sheep, the profits from a particular contract, 
etc. 

328. What is Not Sufficient. — It should be remem- 
bered that to make a valid sale of a thing not in ac- 
tual existence, the seller must at the time of the sale 
be the owner of the germ or nucleus from which the 



SALE OF PERSONAL PROPERTY 193 

property is expected to develop or grow. In the lan- 
guage of the law, it must have a potential existence. 

It would not do to sell the grain expected to grow 
upon the field belonging to a neighbor, even though 
you contemplated buying the farm. You could not 
sell the profits expected to arise from a certain con- 
tract unless the contract itself had already been made ; 
neither could you legally sell the grain expected to 
grow upon a certain field until the seed had been 
planted and there were germs in existence from which 
the crop could grow. It is, however, true that if a per- 
son sells a thing he does not own, but afterwards ac- 
quires a title to it, the ownership immediately passes 
to the buyer. 

329. Statute of Frauds. — It will be remembered that 
one of the provisions under the "statute of frauds'' 
states that a contract for the sale of personal property 
to the amount of $50 or over must be in writing and 
signed by the party to be charged, unless some part of 
the purchase price is paid or some of the goods are de- 
livered. No special form of writing is necessary, and 
any memorandum which clearly sets forth the con- 
tract will answer the purpose if properly signed ; but 
in important transactions it is often desirable to em- 
ploy a more formal document called a bill of sale, the 



13 



194 SALE OF PERSONAL PROPERTY 

signing of which is usually witnessed or acknowl- 
edged by a notary public. 

No. 33. — Form of Bill of Sale 

Know All Men by These Presents: That I, John E. Mason, 
of Chicago, 111., of the first part, for and in consideration of the 
sum of two thousand one hundred twenty-five dollars ($2,125) in 
good and lawful money of the United States, paid in hand to me, 
on or before the sealing of these presents, by Edward K. Sweet- 
ering, of the same place, of the second part, the receipt whereof 
is hereby acknowledged, have bargained and sold, and by these 
presents do grant and convey, unto the said party of the second 
part, his executors, administrators, and assigns, twenty-five 
horses, as mentioned and particularly described in the schedule 
hereunto annexed. 

To Have and to Hold the same unto the said party of the 
second part, his executors, administrators, and assigns forever. 
And I do covenant and agree, to and with the said party of the 
second part, that I am the owner and have the right to transfer 
said property, and will defend the same against any person or 
persons whomsoever. 

In Witness Whereof, I have hereunto set my hand and seal 
this 30th day of March, in the year of our Lord, one thousand 
eight hundred and ninety-nine. 

John E. Mason [seal]. 
State of Illinois, 
County of Cook. 

On this 30th day of March, in the year of our Lord, one thou- 
sand eight hundred and ninety-nine, before me, the subscriber, 
personally appeared John E. Mason, to me personally known 
to be the same person described in and who executed the within 
instrument, and acknowledged that he executed the same. 

Charles H. Whiting, 
[seal] Notary Public. 

My commission expires March 20, 1900. 

330. Delivery. — When the sale is completed, the 
buyer is entitled to immediate possession of the goods 
upon paying the contracted price. If the sale be on 



SALE OF PERSONAL PROPERTY 195 

credit, he is entitled to the goods at once without the 
payment. 

The matter of delivery is very important, and just 
what constitutes a sufficient delivery is sometimes 
hard to determine. The delivery is generally under- 
stood to mean the actual handing over of the goods, 
but more frequently it refers to the change of title. 
There is a certain point in the transaction at which 
the risk of ownership is shifted from the seller to the 
buyer, and it is sometimes of the greatest importance 
to know exactly when the change takes place. 

331. When Something Remains to be Done. — It some- 
times happens that the goods have been selected, 
marked, and set aside for the buyer and yet there re- 
mains something to be done before the delivery is com- 
plete. It may be measuring, weighing, crating, or de- 
livering the same at the home of the buyer. In case 
the goods are stolen or burned before they are actually 
turned over into the hands of the buyer, it is then very 
important to know at what exact point the ownership 
changes from seller to buyer, for the loss must be 
borne by the owner. 

332. When the Title Passes — It seems to be the gen- 
eral rule that the title does not pass from seller to 
buyer as long as there are any conditions of the sale 
unperformed. For example, you purchase from Mr. B 



196 SALE OF PERSONAL PROPERTY 

a bin of wheat at $1 per bushel, the same to be meas- 
ured and paid for the next day, but before the wheat 
is delivered Mr. B fails, and the wheat is attached by 
his creditors. You can not get possession of the wheat, 
for the title has not yet passed to you. 

833. Delivery to Carrier. — When goods are ordered 
from a distant place it is regarded as sufficient deliv- 
ery when they are turned over to the carrier properly 
packed and marked, but the seller should follow 
directions and send by the route ordered, or, in the 
absence of instructions on this point, he should send 
by the shortest and most convenient route. 

334. Constructive Delivery. — It often happens that 
the thing sold is so large as to make a manual delivery 
impossible or inconvenient, and in such cases a con- 
structive delivery is sufficient. This is sometimes 
called symbolical delivery and consists of simply giv- 
ing the party access to the goods. For example, turn- 
ing over the key to the warehouse in which the goods 
are stored or transferring a warehouse receipt for 
grain stored, or it may consist of merely pointing out 
the goods and thus indicating the delivery. 

335. Earnest. — Oftentimes when goods are sold a 
part payment is made to bind the bargain. This pay- 
ment is called an earnest. 

33G. Sale by Sample. — A sale by sample is only con- 



SALE OF PERSONAL PROPERTY 197 

ditional, and the buyer lias a right to compare the 
goods with the sample, and should there be any differ- 
ence he may repudiate the contract if he prefers. The 
same principle is true of goods sold "on approval" or 
"on trial." If a person receives goods on any of the 
conditions above named, he will be expected to notify 
the seller within a reasonable time, provided he does 
not wish to keep the same, for should he continue pos- 
session of them without giving any notice to the 
owner, he will be presumed to be satisfied, and the 
sale will become valid. 

337. Warranty. — Warranty is an agreement either 
expressed or implied that the thing sold will be just as 
represented. This refers to both quality and title of 
the goods. It should be borne in mind that every 
statement about the goods is not to be construed as a 
warranty. For example, you go into a store to buy 
some butter and the clerk shows you some and remarks 
that it is the best in the market. This is not a war- 
ranty, for he does not say the butter is of good qual- 
ity but only assures you that there is no better article 
in the market, and then leaves you to judge for your- 
self whether or not you want it. 

338. Let the Buyer Beware. — It is a well known rule 
in law that the buyer of personal property in the ab- 
sence of fraud or special warranty purchases at his 



198 SALE OF PERSONAL PROPERTY 

own risk. He has the opportunity of inspecting the 
article and is presumed to understand the kind of 
goods he is buying. Caveat emptor is a Latin phrase 
much used in law to express this idea. It means, let 
the purchaser examine the article he is buying and act 
on his own judgment ; in other words, let him beware. 
The law will not undertake to protect any one who 
closes his eyes to glaring defects which are apparent 
to a casual observer, but it will presume that he 
bought the article with the full knowledge of its con- 
dition. Thus you buy a book after examining it and 
seeing that the cover is gone. Even though the seller 
warranted that the book was in good condition, he 
would not be liable to you for this defect. 

339. When Warranty Should be Made. — An offer to 
warrant the goods is binding if accepted at the time 
of the sale, but if made after the sale is completed it 
is void for lack of consideration. 

Suppose you buy a horse for }100, and after paying 
for same you ask the seller if he warrants the animal 
to be gentle and kind, and he replies that he does. 
This is of no effect, for the warranty is not based upon 
a consideration. 

340. When the Warranty of Quality is Implied. — In 
the absence of any special agreement, a warranty of 
quality is always understood or implied when goods 



SALE OF PERSONAL PROPERTY 199 

are ordered by sample or description, or when they are 
ordered for a particular purpose and the buyer relies 
on the judgment of the seller in selecting the article. 
In any of the cases mentioned, if the thing purchased 
be not as represented it may be refused or returned. 

341. Warranty of Title Implied. —Under all ordinary 
circumstances a warranty of title is implied when 
goods are sold, but in case they are sold by an officer 
of the law or a trustee no warranty of title is implied, 
and the buyer should remember that he buys only 
such right or interest as the seller has. 

342. Lost Property. — Any one who finds property 
that has been lost can hold it and has a good title to it 
as against every one except the real owner. The real 
owner has a right to the property wherever it is found, 
even though it be in the hands of an innocent pur- 
chaser. 



200 SALE OF PERSONAL PROPERTY 

SALE OP PERSONAL PROPERTY 

REVIEW QUESTIONS 

Define a sale of personal property. 

Is a sale a contract? 

What is a chose in action? 

What is a chose in possession? 

May property not in existence be the subject of a 
sale? 

Distinguish between a contract of sale and a con- 
tract to sell. 

Can a man transfer a better title to a buyer than he 
has himself? 

What is potential existence? 

What is bill of sale? 

How may the delivery be made? 

What is constructive delivery? 

What constitutes delivery to a carrier? 

When does the title pass to the buyer? 

What is an earnest? 

What is a warranty? 

What is meant by "Let the buyer beware"? 

Is a warranty good which is made after the sale? 






CHATTEL MORTGAGES 201 



CHAPTER XXI 

CHATTEL MORTGAGES 

343. Definition, — A chattel mortgage is simply a 
bill of sale to certain personal property described, 
stating that the property has been sold absolutely to 
the buyer named, but that the sale will become null 
and void provided the seller pays a certain sum men- 
tioned in the mortgage at a specified time. 

344. Parties. — The party giving the mortgage is 
called the mortgagor (mor'-gaj-or), and the party to 
whom it is given is called the mortgagee (mor-ga-je'). 

345. Equity of Redemption. — A chattel mortgage is 
given to secure the payment of a debt, and while the 
mortgagor states that he sells and transfers to the 
mortgagee all his interest in the property described, 
yet, as a matter of equity, the law in most of the states 
provides that the mortgagor has a right to redeem the 
property at any time before the same has been sold 
to satisfy the debt. 

346. Who May Give a Mortgage. — The owner of per- 
sonal property generally has the right to mortgage 
the same provided he be competent to contract, but 
in Nebraska and some other states, household goods 



202 CHATTEL MORTGAGES 

for use in the family can only be mortgaged or sold 
by both the husband and wife signing the instrument 
of conveyance. The rule is the same whether the 
goods are owned by the husband or wife or jointly by 
both of them. 

347. What May be Mortgaged — The general rule is 
that an individual may mortgage any personal prop- 
erty which he owns, but can not mortgage things to 
which he has no title or things which are not in exist- 
ence. You could not therefore give a mortgage to-day 
on a certain described horse and carriage which you 
do not own, but which you expect to purchase to-mor- 
row from Mr. A. It is generally held, however, that 
such a mortgage would become operative as soon as 
you acquired a title to the property described in it. 

348. Growing Crops. — It is usually held that a crop 
may be mortgaged as soon as the seed is in the ground, 
and some authorities hold that a mortgage is valid 
even if given before the crop is planted. The last 
named opinion does not seem to meet with general 
favor, and therefore should not be trusted except 
when it is approved by state legislation. 

349. Filing. — A chattel mortgage should be filed or 
recorded promptly, as required by the laws of the 
state. The mortgage would be valid as between the 
original parties without filing, but it would be void as 



CHATTEL MORTGAGES 203 

against creditors of the mortgagor or bona fide pur- 
chasers unless it was filed or the property delivered to 
the mortgagee. 

In some states chattel mortgages are recorded, that 
is, copied in full on the books of record, the same as a 
deed or real estate mortgage, but in Nebraska and 
most of the western states the original mortgage or a 
certified copy of same is simply filed or deposited in 
the office of the recorder. 

350. The Object of Filing. — The principal object of 
filing a chattel mortgage is to give notice to the pub- 
lic so that any person interested may ascertain the 
facts regarding the ownership of the property. It 
should be noted that filing does not of itself assure 
the validity of the mortgage, for it may be set aside 
by creditors of the mortgagor if it can be shown that 
it was given with fraudulent intent. 

351. Sale of Mortgage. — A mortgage is usually giveu 
to secure the payment of a negotiable note, and in that 
case it may be sold and assigned from one person to 
another, and the buyer will have a legal right to sue 
and foreclose the same in his own name. 

352. Sale of Mortgaged Property. — With the written 
consent of the mortgagee, the mortgagor may sell the 
property subject to the incumbrance, and the pur- 



204 CHATTEL MORTGAGES 

chaser will succeed to all the rights possessed by the 
seller. 

Any one guilty of disposing of mortgaged personal 
property without the written consent of the holder of 
the mortgage is subject to a very severe penalty con- 
sisting of a heavy fine and imprisonment in the peni- 
tentiary. 

353. Foreclosure Before Due. — Most chattel mort- 
gages contain a provision giving the holder the privi- 
lege of taking possession of the property and declar- 
ing the debt due at any time he may feel himself 
insecure or unsafe. Many decisions hold that the mort- 
gagee must have reasonable grounds for asserting that 
he is unsafe, while others hold that he has a right to 
take possession of the property at any time. 

354. Discharge of riortgage. — When a chattel mort- 
gage has been paid in full it may be discharged by the 
mortgagee, his agent, or assigns by making an entry 
to that effect on the margin of the records where it is 
filed. If inconvenient to go personally to the office of 
the recorder or clerk, a written certificate may be 
given and acknowledged before a notary public, stat- 
ing that the mortgage of a certain date and amount 
has been satisfied. This certificate should be sent to 
the clerk for record. (See form at end of this chap- 
ter.) 



CHATTEL MORTGAGES 205 

SYNOPSIS OF LAWS RELATING TO CHATTEL MORTGAGES 

355. Colorado. — Chattel mortgages of $2,500 or less are valid 
for two years. Those made for $20,000 or less are good for five 
years, and those for more than $20,000 will remain valid for ten 
years. 

If the amount of the mortgage exceeds $2,500, the mortgagee 
must annually record a statement setting forth that the mortgage 
secures a bona fide debt, and also stating how much has been 
paid on same, as well as the amount due. Mortgages on mer- 
chandise are void unless the goods are actually delivered to the 
mortgagee. Disposing of mortgaged property is larceny. 

356. Iowa. — Chattel mortgages must be signed, acknowledged, 
and recorded like deeds. If the mortgage covers property which 
is exempt from execution, it must be signed by both husband 
and wife if the owner is married. A mortgage is good for ten 
years after maturity. The mortgagor is entitled to the posses- 
sion of the property, provided it is so stipulated. If properly 
drawn, a chattel mortgage will cover future acquisitions to a 
stock of merchandise. 

357. nontana. — A chattel mortgage is valid for sixty days 
after maturity, provided the whole time does not exceed four- 
teen months. If it runs over fourteen months, the mortgagee 
must file an affidavit describing the mortgage and stating the 
amount paid on same, the amount yet due, and the length of 
time for which it was extended, which must not exceed one year. 

It must also state that the debt was not made, renewed, or ex- 
tended to hinder, delay, or defraud other creditors. 

358. Nebraska. — A chattel mortgage is good for five years. 
Verbal mortgages are good between original parties. To sell or 
transfer mortgaged personal property without the consent of the 
mortgagee is punishable by heavy fine and imprisonment. The 
same is true of removing the mortgaged property from the 
county with intent to defraud. Unless a chattel mortgage is ac- 
companied by immediate delivery of the goods and continued pos- 
session of same, it is void as against all creditors of mortgagor or 
subsequent purchasers or mortgagees, unless such mortgage or 
copy of same has been filed. Chattel mortgages need not be ac- 
knowledged unless they convey household goods used by the fam- 
ily, and in that case both husband and wife must sign the mort- 
gage. This is true whether the property belongs to the husband 



206 CHATTEL MORTGAGES 

or the wife or both of them. Signatures to chattel mortgages do 
not have to he acknowledged before a notary public. 

359. North Dakota. — A chattel mortgage on property not yet 
acquired or in existence is valid, but as to crops, it is only valid 
on the crop next maturing after the delivery of the mortgage, 
except when it is given to secure the purchase price or rental of 
the premises upon which crops are grown, in which case me 
mortgage may cover the crops for a period of years. 

Chattel mortgages taken by insurance companies to secure the 
payment of premium are void unless written on a paper separ- 
ate from the application for insurance. Chattel mortgages must 
have two witnesses. Chattel mortgages must be filed or they will 
be void as against creditors of the mortgagor or subsequent pur- 
chasers or mortgagees, and even when filed will cease to be valid 
against them after the expiration of three years, unless within 
ninety days next preceding the expiration of such time a copy of 
the mortgage with a sworn statement of the debt remaining be 
filed. 

360. South Dakota. — Chattel mortgages must be filed or they 
will be void as against a third party, and even if filed they will 
cease to be valid after three years from the date of filing, unless 
within thirty days next preceding the expiration of said three 
years, a copy of the mortgage and sworn statement of the amount 
still due be filed. The filing of this statement renews the mort- 
gage for three years more. 

Mortgage on personal property must be signed by two wit- 
nesses. The mortgagee must make and deliver to the mortgagor 
a true copy of the mortgage without additional cost, and unless 
the mortgage contains a statement over the signature of the 
mortgagor that he has received such copy it shall be void and 
can not be filed. 

A chattel mortgage can be renewed or extended only on an 
agreement signed by the mortgagor. 

361. Utah. — A mortgage on personal property is void after 
one year from filing the same, unless within thirty days next 
preceding the expiration of said year, and each year thereafter, 
the mortgagee shall file an affidavit showing the amount then 
due. The whole time can not, however, exceed five years. Both 
husband and wife must sign when mortgaging any property 
which is exempt. 

362. Wyoming. — Chattel mortgages must be executed and ac- 



CHATTEL MORTGAGES 207 

knowledged the same as real estate mortgages, but they are filed 
instead of recorded. A chattel mortgage is good until sixty days 
after maturity; then it becomes void except as to the original 
parties, unless during the sixty days an affidavit is filed stating 
the amount yet due. Such an affidavit has the effect of renewing 
the mortgage for another year. 

No. 34. — Chattel Mortgage 

Know All Men by These Presents: That I, Carl Titus, of 
the County of Clay and State of Nebraska, in consideration of 
the sum of Two Hundred Dollars to me in hand paid by Gall 
Munyon, of San Juan County, State of Colorado, party of the 
second part, the receipt whereof is hereby acknowledged, have 
bargained and sold, and by these presents do grant and convey 
unto the said party of the second part, his heirs, and assigns, 
etc., the following goods and chattels, to-wit: 
(Here carefully and fully describe the property.) 
To Have and to Hold the same forever; and I, the said party of 
the first part, will forever warrant and defend the same against 
all persons whomsoever. Upon condition, however, that if the 
said party of the first part shall pay to the said party of the sec- 
ond part, his heirs, assigns, etc., his Two certain promissory 
notes, dated, Grand Island, Nebraska, June 10, 1905, and described 
as follows: 

One for One Hundred Dollars ($100) payable July 10, 1905. 

One for One Hundred Dollars ($100) payable September 10, 
1905. 

With interest at the rate of ten per cent per annum from date 
until paid according to the tenor thereof, then these presents to 
be void, otherwise in full force. 

And I, the said party of the first part, do hereby covenant and 
agree to and with the said party of the second part that in case 
default is made in the payment of the above mentioned promis- 
sory note, or any part thereof, or in case of my attempting to dis- 
pose of or remove from said County of Clay the aforesaid goods 
and chattels, or any part thereof, or if at any time said mortgagee 
or his assigns should feel unsafe or insecure, then, and in that 
case, it shall be lawful for the said mortgagee or his assigns, by 
himself or agent, to take immediate possession of said goods 
and chattels wherever found, the possession of these presents 
being his sufficient authority thereof, and to sell the same at pub- 



208 CHATTEL MORTGAGES 

lie or private sale, with or without advertisement, as the holders 
may deem best, advertisement and sale according to law being 
hereby expressly waived, or so much thereof as shall be sufficient 
to pay the amount due, or to become due, as the case may be, with 
all reasonable costs pertaining to the taking, keeping, advertising, 
and selling of said property, together with a sum equal to ten 
per cent of the amount due, as liquidated and stipulated damages, 
if the notes hereby secured are not paid within thirty days after 
maturity, which amount shall be in full of such damages. The 
money remaining after paying said sums, if any, to be paid on 
demand to the said party of the first part. 

I live on Section 10, Township 12, Range 9, County of Glay, 
Nebraska. 

Witness my hand this 10th day of June, 1905. 
witness: Gael Titus. 

Harry Sparling. 
Claude Constable. 

No. 35. — Release of Chattel Mortgage 

Grand Island, Neb., Sept. 10, 1905. 
I acknowledge satisfaction of a Chattel Mortgage for Two 
Hundred Dollars ($200) given by Carl Titus to Gail Munyon on 
the 10th day of June, 1905, and I hereby authorize the cancella- 
tion of the same. 

Attest: Albert Denman, Gail Munyon. 

[seal.] Notary Public. 



CHATTEL MORTGAGES 209 

CHATTEL MORTGAGES 
REVIEW QUESTIONS 

What is a chattel mortgage? 

How does it differ from a bill of sale? 

What are the parties called? 

What is meant by equity of redemption? 

Who may give a chattel mortgage? 

Must both husband and wife sign same? 

What may be mortgaged? 

Is mortgage valid on things not in existence at time 
mortgage is given? 

Is mortgage on crops not yet planted good? 

Is it necessary to file or record a chattel mortgage? 

What is the object of filing a mortgage? 

Is it void if not filed? 

What is the difference between "filing" and "re- 
cording"? 

Does filing assure the validity of the mortgage? 

May a mortgage be sold? 

May mortgaged personal property be sold? 

What is the penalty of doing so without the written 
consent of the mortgagee? 

What is foreclosure of a mortgage? 

May the holder to the mortgage declare it due at 

any time? 

How is a mortgage discharged? 
u 



210 GUARANTY OR SURETYSHIP 



CHAPTER XXII 

GUARANTY OR SURETYSHIP 

363. Guaranty. — A guaranty is an agreement by 
which one person undertakes to become responsible 
for the payment of some debt or the performance of 
some act contracted by another. 

364. Guarantor's Contract. — A guarantor may either 
sign a separate paper entirely, or he may write the 
guaranty on the original contract, but whichever 
plan he uses, he is not liable until the party for whom 
he signs has failed to carry out the contract. 

365. Must be in Writing.— The "statute of frauds," 
which has been discussed in a previous chapter, pro- 
vides that every special promise to answer for the 
debts, wrongful acts, or misdoings of another must be 
in writing; therefore all contracts of guaranty must 
be written and signed by the guarantor; otherwise 
they can not be enforced. 

366. Consideration. — A guaranty, like any other 
contract, must be supported by a consideration, but 
if the contract of guaranty is made at the same time 
the principal contract is entered into, the same con- 
sideration will do for both, but if made afterwards it 
must have a separate consideration. To illustrate, 



: 



GUARANTY OR SURETYSHIP 211 

you offer to loan me f 100 on my note with Henry 
Brown as guarantor. I draw up a note, and Brown 
writes on the back of same as follows : "For value re- 
ceived I hereby guarantee the payment of this note. 
Henry Brown." This guaranty is binding, and the 
loan of $100 is the consideration of both the note and 
the guaranty. On the other hand, if you had made 
the loan to me on my own note and afterward induced 
Brown to sign as guarantor he could not be held un- 
less there was a new consideration. 

367. Right of Guarantors. — Whenever a guarantor 
has been compelled to pay a debt, he may proceed at 
once to recover the amount from the principal, that is, 
the person for whom he guaranteed the obligation. 

The court construes a contract of guaranty very 
strictly and adheres with the utmost precision to the 
exact terms of the agreement. 

Should the guarantor pay a debt for his principal, 
he has a right to demand from his creditors the securi- 
ties he holds, but he can not require an assignment 
of the debt itself, for that he has paid and discharged. 

368. A flinor flay be a Principal. — Under ordinary 
circumstances the liability of the guarantor can not 
be greater than that of his principal, although there 
are a few important exceptions to this rule, among 
them being the case of a minor's contract. The minor 



212 GUARANTY OR SURETYSHIP 

of course is not always liable for his obligations, but a 
person of legal age who signs with him is liable even 
though the minor could not be held for the debt. 

369. The Strict Terms of the Contract. — As before 
stated, the contract of guaranty is construed very 
strictly. Thus, a guaranty of the payment of a note 
to be given by Mr. A will not hold if the note be 
signed by both A and B. Again, should the guaran- 
teed party vary materially the conditions of the orig- 
inal contract, the guarantor is released. A bond was 
given for faithful performance of duties as deputy col- 
lector of taxes for eight certain townships, but later 
the certificate of appointment was changed so as to 
extend to another township without the consent of 
the guarantor. The supreme court of the United 
States held that this alteration discharged the guar- 
antor. 

870. Negotiability of Guaranty. — There seems to be 
considerable conflict of authority as to whether a 
guaranty of a negotiable note is itself negotiable. It 
was held by Judge Story and others that if the guar- 
anty is written on the note itself it is negotiable, but 
recent decisions in many of the states are inclined to 
the opposite view. 

371. Continuing Guaranty — This is a form of guar- 
anty which is intended to cover more than one trans- 



GUARANTY OR SURETYSHIP 213 

action. The following letter would be a continuing 
guaranty : 

No. 36. — Letter of Guaranty 

Chicago, III., March 1, 1901. 
Story & Clark Piano Co., Chicago, III. 

Gentlemen — Please sell to the bearer, Mr. Chas. R. Williams, 
on the customary terms of credit, such goods as he may desire 
in any amount not exceeding one thousand dollars, and I hereby 
guarantee the prompt payment of the same. 
This is intended as a continuing guaranty. 
Yours respectfully, 

R. L. Hampton. 

372. Guaranty of Payment. — This form of guaranty 
is perhaps more frequently used than any other, and 
it consists of an absolute and unqualified promise 
that the debt guaranteed shall be paid at maturity. 
The following form may be used : "For value received 
I hereby guarantee the payment of the within note. 
J. A. Munro." 

373. Guaranty of Collection. — It should be remem- 
bered that guaranty of collection is quite different 
from guaranty of payment. In the latter case you 
give your guaranty that the note will be paid at ma- 
turity, and if it is not you are liable at once, but in a 
guaranty of collection you simply guarantee that the 
note can be collected, and no one can say for a cer- 
tainty that it can not until the maker and endorsers 
are sued and all legal means are exhausted ; then if it 



214 GUARANTY OR SURETYSHIP 

still remains unpaid, action may be commenced 
against the guarantor. 

If the maker has moved from the state or is well 
known to be insolvent, the action need not be brought 
against him, but the holder may proceed against the 
guarantor at once. 

The following form may be used: "For value re- 
ceived I hereby guarantee the collection of the within 
note. J. A. Munro." 

374. Warranty, Guaranty, and Surety. — These terms 
being somewhat similar in meaning are often con- 
fused, although there is a Avide difference in their ap- 
plication. 

You warrant a horse to be gentle, or a watch to be 
solid gold, or cloth to be all wool ; so a warranty deals 
only with the thing now in existence; but you guaran- 
tee things which are to happen in the future, for ex- 
ample, you sell fruit trees and guarantee them to 
grow ; you build a house and guarantee to have it fin- 
ished before a certain date. 

A person who signs as a guarantor makes a second 
contract and is never jointly liable with his principal. 
His contract or guaranty may be upon a second sheet 
of paper, while a surety always signs the same paper 
as his principal and is jointly liable with him. For 
example, you sign a note with me as surety. If I do 



GUARANTY OR SURETYSHIP 215 

not pay when due the holder may at once sue both of 
us jointly. This could not be done in case of guar- 
anty, as the guaranty is regarded as a separate con- 
tract which must be sued alone; but the surety is 
bound with the principal practically the same as a co- 
maker. • 

375. Rights of Surety. — The surety is given certain 
rights by the law, the most important of which are 
as follows : 

1. He may pay the debt himself and bring action 
against the principal at once. 

2. He may bring an action to compel the principal 
to pay the creditors. 

3. If he be a cosurety and pays the debt, he has the 
right of contribution. 

4. He has the right of subrogation. 

376. Contribution. — If you sign as surety on an ob- 
ligation with two or more cosureties or coguarantors, 
you may be compelled to pay the entire debt ; but you 
have the right of action against the others to make 
them contribute their proportion of the loss. This is 
called contribution. It is well to remember that the 
right of contribution does not include the costs of the 
suit, but only the original obligation. 

377. Subrogation. — This means to succeed to the 
right of another person whose debt you have paid. 



216 GUARANTY OR SURETYSHIP 

When the surety pays the debt of his principal he has 
a right to demand all the securities of whatever kind 
held by the creditor for the payment of the debt. This 
is called the right of subrogation. 

378. How Surety May be Discharged. — There are var- 
ious ways in which a person who has signed as secur- 
ity may be discharged from his obligation, but the 
most common are as follows : 

1. Fraud practiced on the surety. 

2. Eelease. 

3. Alteration. 

4. Extending time to principal. 

6. Parting with security. 

7. Merger. 

379. Fraud Practiced on Surety. — When any one 
signs as surety under a misrepresentation or conceal- 
ment of the facts, or when any species of fraud is 
practiced upon him either by the principal or the cred- 
itor in order to induce him to sign as surety, the con- 
tract becomes absolutely void as to all parties having 
knowledge of the fraud. 

380. Alteration. — Should the holder of a contract 
make any change or material alteration in the con- 
tract, it would have the effect of releasing the surety 
us well as the principal maker. This in fact would 



GUARANTY OR SURETYSHIP 217 

be a species of fraud and would make the contract 
void. 

381. Extending Time to Principal. — As explained in 
a previous chapter, whenever the holder of a note 
makes a definite contract with the maker for a con- 
sideration to extend the time of payment, this act re- 
leases all other signers as well as all who have signed 
as guarantors or surety. Simply neglect or forbear- 
ance to bring an action against the principal will not 
release the surety, neither will a mere promise to give 
more time. For example, you hold my note for $50 
due to-day with Brown as surety. I go to you and 
ask for sixty days' more time, and you promise to wait 
that length of time. This does not release Brown, 
for the agreement to give more time has no legal 
standing as it was not based upon a consideration, 
and, notwithstanding your promise, you have a legal 
right to sue me at any time. Had I agreed to pay a 
higher rate of interest or give you anything of value 
in consideration of the extension, the surety would 
have been released. 

382. Parting With Security. — When the surety 
pays a debt for his principal he is by the right of sub- 
rogation entitled to all the securities, rights, etc., 
which the creditor himself could enforce. It is there- 
fore the duty of the creditor to carefully guard all his 



218 ' GUARANTY OR SURETYSHIP 

security, as he does not hold this security for himself 
alone, but also for the surety in case he must pay the 
obligation. 

You hold a note against me for $500 on which B is 
surety, and you also hold as collateral a chattel mort- 
gage from me on some cattle. Should you, for any 
reason, release the chattel mortgage without the con- 
sent of B, he would be released to the extent of the 
value of the cattle. 

383. Merger. — This means paying one debt by creat- 
ing another of a higher form. For example, you hold 
a note against A on which B is surety. At maturity A 
can not pay the note, but he gives you a new note se- 
cured by a mortgage on his farm, the old debt becom- 
ing merged into the new one, and this act releases B, 
who is surety. If, in the above case, you did not wish 
to release B from the old note, you could retain them 
both and regard the new note and mortgage as col- 
lateral security to the old one. 

384. How Guarantors May be Released. — Any act 
that will release a surety will also release a guar- 
antor. A guarantor may also be released sometimes 
by failure to make demand for payment at maturity 
or to send notice of non-payment. 

385. Order of Liability. — The order of the liability 
of signers on a note or contract is as follows : 



GUARANTY OR SURETYSHIP 219 

1. Maker or makers. 

2. Surety. 

3. Guarantor of payment. 

4. Guarantor of collection. 

5. Endorsers. 

386. Compromise. — It sometimes happens that a 
surety compromises the debt and settles it by making 
only a partial payment, and in that case he can re- 
cover from his principal only the amount he actually 
paid and not the face of the debt discharged. It 
makes no difference whether he paid it voluntarily or 
was compelled to pay it ; the rule is that he can not be 
allowed to make a profit out of the venture. 

To illustrate ; suppose A is surety for B on a note of 
|600. At maturity B fails to pay it, and A compro- 
mises by paying f 500. He will not now be able to com- 
pel B to pay him the full $600, for he would then be 
speculating in the misfortunes of his friend whom he 
is pretending to help. 

387. Bonds. — A bond is an instrument by which one 
person binds himself, his heirs, executors, and admin- 
istrators to pay a certain sum of money to another. 
This is usually a conditional promise and states that 
the same shall become void provided the maker per- 
forms a certain specified act mentioned in the bond, 
otherwise it shall remain in full force. In bonds of 



220 GUARANTY OR SURETYSHIP 

this kind the party bound is called the obligor and the 
party to whom he is bound is called the obligee. The 
sum mentioned in the bond is called the penal sum or 
penalty. 

388. Amount Which Can be Collected on a Bond 

While a bond recites a specific amount which is to be 
paid in case the conditions of the contract are not 
carried out, yet the courts will not strictly enforce 
the payment of this amount, but will compel the 
obligor to pay only the amount required to indemnify 
the obligee for the loss he has sustained by the failure 
of the obligor to meet the conditions of the bond. 

Suppose A works for me and you sign his bond for 
f5,000, to guarantee his honesty, ability, and faithful- 
ness. A turns out to be a rascal and steals money 
and property from me. I can not recover from you to 
exceed $5,000, no matter how much the loss may be, 
and if the loss be less than that amount I can recover 
only the exact amount of my loss. 

No. 37. — General Guaranty 

Grand Island, April 1, 1901. 
Messrs. Williams & Rogers, Chicago, III. 

Gentlemen — The bearer, Mr. John Bryant, visits your city 
for the purpose of purchasing a supply of books and stationery. 
If you will sell him a bill not exceeding one thousand dollars, at 
ninety days, I will guarantee the payment of same. 
Yours truly, 

P. D. May. 



GUARANTY OR SURETYSHIP 221 

No. 38. — Guaranty of Payment to be Endorsed on Note 

For value received I hereby guarantee the payment of the 
within note. 

J. A. Hampton. 

No. 39. — Guaranty of Collection to be Endorsed on Note 

For value received I hereby guarantee the collection of this 
note. 

J. A. Hampton. 

No. 40. — Guaranty of Note on Separate Paper 

For value received I guarantee the payment at maturity of a 
promissory note dated January 1, 1901, whereby H. A. Cole prom- 
ises to pay to M. F. Goodyear One Hundred Dollars in six momns 
from date. 

J. A. Hampton. 

No. 41. — Guaranty with Collateral, Authorizing Sale 

Having borrow this day from J. B. Drennan the sum of 
$1,000 on the following collateral: One note of $300, dated Janu- 
ary 1, 1901, signed by Thompson Bros.; five shares of stock in 
the Chicago Grain Co., the par value of which is $500; one note 
and mortgage for $600, dated July 1, 1901, and signed by J. H. 
Williams, Now witness that in the event of non-payment at ma- 
turity of this note or the interest thereon the said J. B. Drennan 
or his assigns is hereby authorized to sell the above collaterals 
at public or private sale, without notice to me, and to apply the 
proceeds to the payment of said note and all necessary expenses, 
and I hold myself responsible for any deficiency. 

In witness whereof I have hereto set my name on this the 
10th day of October, 1901. 

J. A. Hampton. 
Signature witnessed by 

Leonard Umscheid. 

No. 42. — Simple Bond Without Condition 

Know All Men by These Presents: That I, G. H. Packard, 
am held and firmly bound unto B. M. Smith in the sum of $1,000 
lawful money of the United States, to be paid to the said B. M. 
Smith or his attorney, executors, or assigns, to which payment 



222 GUARANTY OR SURETYSHIP 

well and truly to be made I bind myself, my heirs, executors, 
and administrators jointly, severally, and firmly by these 
presents. 

In testimony whereof I have set my hand and seal to this in- 
strument on this the 9th day of October, 1901. 

J. A. Hampton. 
Executed and delivered in the presence of 
Charlie Frack. 
Otho I mm. 

No. 43. — Bond for a Deed 

Know All Men by These Presents: That we, J. A. Hampton 
as principal and John Thorp and Henry Meyers as sureties, are 
held and stand firmly bound unto A. H. Andrews in the sum of 
$2,000, to the payment of which we hereby jointly and severally 
bind ourselves, our heirs, executors, and administrators. The 
condition of this obligation is such that, whereas the said obligors 
have agreed to sell and convey unto said obligee a certain parcel 
of real estate situated in the county of Hall and state of Ne- 
braska and described as follows, namely: Lots Nos. 8 and 10 in 
Block 24, Railroad Addition to the City of Grand Island, the same 
to be conveyed by a good and sufficient warranty deed of the said 
obligor, conveying a good and clear title to the same, free from 
all incumbrances. And whereas for such deed and conveyance 
it is agreed that the said obligee shall pay the sum of $2,000, of 
which $1,000 are to be paid in cash upon the delivery of said 
deed and the remainder by a promissory note of said obligee 
bearing interest at eight per cent per annum, payable semian- 
nually and secured by a first mortgage in the usual form upon 
said premises, such note to be drawn and dated on the day of 
the delivery of the deed and shall be payable on or before three 
years from said date. 

Now, therefore, if the said obligors shall, upon tender of said 
obligee of the aforesaid cash, note, and mortgage at any time 
within sixty days from this date, deliver unto said obligee a good 
and sufficient deed as aforesaid, then this obligation shall be 
void: otherwise it shall be and remain in full force and virtue. 



GUARANTY OK SURETYSHIP 223 

In witness whereof we hereunto set our hands and seals 
this tenth day of March, 1902. 

J. A. Hampton, Principal. 
John Thorp, 
Henry Meyers, 
Signed in the presence of Sureties. 

W. R. Jones. 

No. 44. — Bond for a Deed With Acknowledgment 

Know All Men by These Presents: That we, A and B, of the 
County of Hall and State of Nebraska, are held and firmly bound 
to C of the County of Cook and state of Illinois in the sum of 
three thousand dollars, to be paid to said C, his executors, ad- 
ministrators, or assigns, to the payment whereof we bind our- 
selves, our heirs, executors, and administrators firmly by these 
presents, dated this first day of December, 1901. 

The condition of this obligation is that if we, the said A and 
B, upon payment of $3,000 and interest by said C within three 
years from this date, agreeable to three notes of even date here- 
with, shall convey to said C and his heirs forever a certain tract 
of land situated in the county of Lancaster and state of Nebraska, 
to-wit, the N. W. quarter of section 15, range 10, township 14, 
by a warranty deed in common form duly executed and acknowl- 
edged and in the meantime shall permit the said C to occupy 
and improve the said premises for his own use, then this obli- 
gation shall be void, otherwise to remain in full force and effect. 

In testimony whereof we have each set our hand and seal on 
the day of the year first above written. 

[signed] A. 

B. 

State of Nebraska, 



ss 
County of Hall. S 

Be it known that on this, the second day of December, 1901, 
before me, the undersigned notary public in and for said county 
and state, duly commissioned and qualified, came said A and B, 
who are known to me to be the same persons whose names are 
subscribed to the foregoing instrument of writing as the parties 
thereto, and they acknowledged the same to be their voluntary 
act and deed for the purpose therein mentioned. 

In testimony whereof I hereunto set my hand and affix my of- 



224 GUARANTY OR SURETYSHIP 

ficial seal at my office in the city of Grand Island on the day and 
year last above written. 

Edw. Marks, 
[seal] Notary Public. 

My commission expires May 20, 1903. 

FORMS OF ASSIGNMENTS 

While promissory notes and negotiable papers 
are usually transferred from one person to another 
by simple endorsement, it is common with the more 
formal or solemn documents to use an extended form 
of assignment. We give below a number of examples 
for reference which are suitable for most purposes. 

No. 45. — Assignment Sometimes Endorsed Upon a Note 

For value received I hereby assign and transfer the within 
note, together with all my interest and right under the same, 
to Geo. W. Barker. 

J. A. Hampton. 

No. 46. — Assignment of Bond With Power of Attorney and a 

Covenant 

Know All Men by These Presents: That I, J. A. Hampton, 
of the first part, for and in consideration of the sum of $1,000, 
lawful money of the United States of America, to me in hand 
paid by Martin Camp, of the second part, at or before the seal- 
ing and delivering of these presents, the receipt whereof is hereby 
acknowledged, have bargained, sold, and assigned, and by these 
presents do bargain, sell, and assign unto the said party of the 
second part, his executors, administrators, and assigns, a cer- 
tain written bond or obligation, bearing date of the 7th day of 
December, 1898, executed by the Moline Plow Co., of Moline, 111., 
and all sum and sums of money to become due thereon. And the 
said party of the first part does covenant with the said party 
of the second part that there is now due on said bond or obliga- 
tion, according to the conditions thereof for principal and in- 



GUARANTY OR SURETYSHIP 225 

terest, the sum of $1,125, and does hereby authorize the said 
party of the second part in his name to ask, demand, sue for, 
recover, receive, and enjoy the money due and that may be- 
come due thereon as aforesaid. 

In witness whereof I have hereunto set my hand and seal 
this 12th day of January, 1902. 

[signed] J. A. Hampton. 
Signed and delivered in the presence of 
B. S. Orr. 

No. 47. — Assignment of Wages With Power of Attorney 

Know All Men by These Presents: That I, A B, of the 
County of Hall and State of Nebraska, in consideration of $47 to 
me in hand paid by C D, of Grand Island, Nebraska, the receipt 
whereof is hereby acknowledged, do assign and transfer unto 
the said C D all claims and demands which I now have and all 
which at any time between the date hereof and said first day of 
January next may and shall become due to me for services, and 
hereafter to have and to hold the same to the said C D, his ex- 
ecutors, administrators, and assigns forever. 

And I, A B, do hereby constitute and appoint the said C D and 
his assigns to be my attorneys, irrevocable in the premises, to 
do and perform all acts, matters, and things, touching the prem- 
ises in the like manner, to all intents and purposes as I could if 
personally present. 

In witness whereof I have set my hand and seal this third 
day of October, 1902. 

[signed] A B. 
Signed, sealed, and delivered in the presence of 
E F. 



15 



226 GUARANTY OR SURETYSHIP 

GUARANTY OR SURETYSHIP 
REVIEW QUESTIONS 

What is a guaranty? 

Is the guaranty written on the original contract or 
on a separate sheet? 

Must it be written? 

What is the consideration? 

What are some of the rights of guarantors? 

May a minor be a principal? 

Is a guaranty negotiable? 

Define continuing guaranty. 

Distinguish between guaranty of payment and guar- 
anty of collection. 

Distinguish between surety, guaranty, and war- 
ranty. 

Name some of the rights of surety. 

What is the right of contribution ?^ 

What is the right of subrogation? 

How may the surety be discharged? 

If surety settles debt for less than face, can he col- 
lect whole amount from principal? 

Define a surety bond. 



AGENCY 227 



CHAPTER XXIII 

AGENCY 

389. An agency is based upon the theory that what- 
ever a person may himself legally do he may employ 
some one else to do for him, and should another 
person perform an act for him without authority he 
can make it his own by giving it his approval. 

390. Parties. — The person who furnishes the em- 
ployment is called the principal or employer, and the 
one who is employed is called the agent or the em- 
ploye' (em-ploy-a'). 

Any person capable of making a legal contract may 
act as principal, and any one of sufficient understand- 
ing to transact business intelligently may act as agent. 
A minor may act as agent and bind his principal even 
though he be unable to bind himself by a contract. 

391. Classes of Agents. — Agents are divided with 
reference to their authority into two classes called 
(1) general, (2) special. What is known as profes- 
sional agents are sometimes treated as a separate 
class, but in reality they belong to special agents. 

392. General Agents. — A general agent is one em- 
powered to transact all business for his principal of i 
particular kind or at a particular place. When a gen- 



228 AGENCY 

eral agent is employed, he is presumed to be given all 
the authority necessary for transacting business in 
the usual way, but in case he goes beyond his ac- 
tual instructions he will bind the principal so long 
as he keeps within the usual scope of the business. 
This will not be true, however, if the person doing- 
business with him knows he is transcending his au- 
thority. 

A is your general manager in the grain business 
and buys a large quantity of corn, paying more than 
the market value, which is in direct opposition to 
your instructions. You will be held to the contract 
although A will be responsible to you. 

393. Special Agents. — A special agent is one who is 
appointed and authorized to do a specific thing or a 
few things. Every person dealing with a special agent 
should first satisfy himself of the agent's authority, 
for the principal will not be bound beyond the scope 
of his contract with the agent, but in case the agent 
goes beyond his authority in the presence of or with 
the knowledge of the principal, the principal will then 
be bound by the act unless he objects at once. 

394. Auctioneer. — An auctioneer is a special agent, 
and should he be instructed to sell certain goods for 
not less than |50 he could not bind the principal by 
selling them for f 45. The principal will be bound by 



AGENCY 229 

any statement or repesentations made by the auc- 
tioneer, and if any fraud or deceit is practiced the 
buyer may return the goods and demand his money. 
When the sale is made "without reserve" puffers or 
by-bidders are not allowed, and their employment will 
be generally regarded as a species of fraud. 

395. Professional Agents. — Professional agents are 
those who hold themselves out to the world as being 
well qualified to perform certain work which they un- 
dertake to do for a compensation. Perhaps the best 
known professional agents are attorneys. They are of 
two classes, the attorney at law and the attorney in 
fact. 

396. Lawyers. — A lawyer or attorney at law is an of- 
ficer of the courts who, after pursuing a course of 
reading or study upon the subject of law, is examined 
as to his qualifications and admitted to the bar. He 
is then allowed to act as agent for any one who may 
choose to employ him in the management of cases be- 
fore the court. 

397. Relations Confidential. — Before being admitted 
to practice a lawyer must, under oath, pledge himself 
to be true to his clients, and he is under the most sol- 
emn obligations not to divulge any secrets his client 
may make known to him. Even if the client admit to 
his attorney that he is guilty of a crime, the attorney 



230 AGENCY 

will not be allowed under any circumstances to tes- 
tify to that effect. 

398. Attorney in Fact. — In the strict sense of the 
term an attorney in fact is not a professional agent, 
although he is usually classed as such. An attorney 
in fact is one who has received special authority to do 
some particular act, usually signing the principal's 
name and affixing his seal. Any person with average 
capacity may be appointed an attorney in fact, and 
the document giving him authority is called a power 
of attorney. Among other professional attorneys 
might be mentioned brokers, factors, auctioneers, 
masters of ships, etc. 

399. How Appointed. — An agent must be appointed 
or in some way authorized by the person for whom he 
is to act, the general rule being that no one can be- 
come the agent of another without the consent of the 
principal. This consent may be given by spoken 
words, by written authority, or it may be implied from 
the relations the parties bear to each other. 

400. Power of Attorney. — If the business to be done 
by the agent requires the execution of documents un- 
der seal, then the appointment must be made in writ- 
ing under seal. The appointment must always be of 
as high a nature as the contract which the agent is 
authorized to make. An appointment of this kind is 



AGENCY 231 

called a power of attorney. In states where acknowl- 
edgement is necessary to entitle a document to be re- 
corded, the power of attorney should also be acknowl- 
edged. A number of forms are given at the close of 
this chapter. 

401. Contract for the Sale of Real Estate. — Although 
a power of attorney is needed before an agent can 
convey real estate, it is not necessary in order to be 
able to contract for the sale of same. 

Authority for this purpose may be conferred by a 
simple written statement, a business letter, or in 
many states by oral agreement with the principal. 
When the agent makes the contract for the sale of the 
land, it of course must be in writing. Example. — B 
instructs a broker to sell his farm for $2,000, and 
next day a customer is found and the broker enters 
into a written contract to sell him the property. B 
later finds out he can get more for the place and tries 
to avoid the contract, but he can not, and must con- 
vey the land. 

402. An Implied Agency. — Whenever a principal 
knowingly allows any one to act as his agent or holds 
any one out as being his agent, or where their relations 
are such as to reasonably warrant the presumption, 
then the law will assume it to be a fact that the agency 



232 AGENCY 

exists, and the principal can not deny it to the detri- 
ment or injury of a third party. 

For example, you stand by and see Smith sell some 
of your goods for you. Later you change your mind 
and do not want to carry out the contract, claiming 
Smith had no authority to make the sale. The sale 
would stand, as the authority was implied by your 
silence. 

408. Notice to Agents. — Any notice sent to an agent 
relative to the business of. the agency is regarded as 
notice to the principal himself. 

404. Duties of Agent to Principal. — Among the 
most important duties or obligations which the agent 
owes to his principal may be mentioned the follow- 
ing: 

1. Must be loyal. 

2. Must obey instructions. 

3. Must exercise reasonable skill and diligence. 

4. Must give personal attention to the work. 

5. Must act in principal's name. 

6. Must keep accounts. 

7. Must follow usages of trade in the absence of 
instructions. 

8. Must have no adverse interests. 

405. Agent riust be Loyal. —One of the first duties of 
an agent to his principal is loyalty. His time, talent, 



AGENCY 233 

and energy belong to his principal, and lie must not 
have any interests in the business which are adverse 
to those of his principal; neither must he take ad- 
vantage of his principal for the benefit of any other 
person. 

406. riust Obey Instructions. — An agent is bound to 
carefully follow instructions of his principal so long 
as he is not required to do anything that is immoral 
or unlawful. In case the principal sustains a loss on 
account of the failure of the agent to follow instruc- 
tions, the agent will be held responsible for same. 

He is not of course expected to do an impossible 
thing, and he is also excused in case of great emer- 
gency from following instructions. 

407. Skill and Diligence. — When an agent is em- 
ployed he is expected to exercise ordinary diligence in 
all his work and also a reasonable degree of skill. 
The degree of diligence and skill required will de- 
pend upon the nature of the work to be done, but 
whether it be common labor or something requiring 
great skill he is expected to do his work well. 

408. Personal Attention. — An agency is a personal 
trust, and an agent is 'often employed solely on the 
strength of his good judgment, skill, and integrity. 
It therefore follows that the agent must give it his 
personal attention and can not delegate his author- 



234 AGENCY 

ity to a subagent or substitute. This rule does not 
apply to cases where the nature of the business is such 
as to absolutely require subagents, neither does it 
apply to cases not involving personal confidence, but 
only requiring mechanical duties. 

409. Must Act in Principal's Name. — The agent must 
transact all business in the name of the principal, 
otherwise he will become personally responsible. All 
contracts or documents of any kind should be signed 
with the principal's name followed by that of the 
agent, thus: Jno. Harris & Co., by L. E. Curtis, 
Agent. In case he signs "L. E. Curtis, Agent" or 
"L. E. Curtis, Agent for Jno. Harris & Co.," he n^ay 
be held personally responsible for the contract. 

410. flust Keep Accounts. — It is the duty of an agent 
to keep a correct record of all moneys collected and 
paid out for his principal and, where the nature of 
the business requires it, to keep a record of all busi- 
ness transacted. He should also make frequent re- 
ports as to all necessary details relative to the busi- 
ness under his charge. 

411. Deposit Money. — When money to any consider- 
able amount has been collected by the agent, he should 
deposit same with some bank in the name of the 
principal. Should he deposit it in his own name he 



AGENCY 235 

would be liable to the principal in case the bank 
should fail. 

412. Usage of Trade. — In case of an emergency or 
in the absence of instructions the agent should pro- 
ceed according to the recognized usages of trade, and 
at all times he is expected to use as much care and 
diligence for his principal as he would use were he 
doing the business for himself. 

413. Agent Must Have no Adverse Interests. — As 
stated in a previous paragraph, the agent must have 
no business in opposition to that of his principal. 
He can not avail himself personally of any special op- 
portunity for profit in the line of his principal's busi- 
ness. For example, A is purchasing agent for you. 
He finds a bankrupt stock which is a special bargain 
and buys it with his own money, selling same at once 
at $1,000 profit. The profit belongs to you. You are 
paying him to buy for you, and if he finds any spe- 
cial bargains you are entitled to them. In case he 
should lose money when doing business in his own 
name, he would have to bear the loss himself, but in 
case he makes a profit it belongs to the principal. 

414. No Compensation.' — If an agent contracts to do 
something which is unlawful or against good morals 
or public policy, he can not by law collect compensa- 



236 AGENCY 

tion for his services, even though he has done his work 
according to contract. 

For example, Mr. B is employed as agent for a lot- 
tery company at a certain salary. He can not sue the 
company and collect his salary in any state where lot- 
teries are forbidden. 

415. Liability of Agent to Third Party. — When an 
agent is employed he is supposed to represent his 
principal in whatever he does in connection with the 
agency; but it should be remembered that no princi- 
pal can confer upon him the right to do a thing that 
is fraudulent or unlawful. There are numerous con- 
ditions under which the agent becomes personally 
responsible, and among them are the following: 

1. When he goes beyond his authority. 

2. When the principal is not known. 

3. When the agent contracts personally. 

4. For torts, fraud, or deceit. 

416. When he Exceeds Authority. — An agent is 
not supposed to exceed his authority, but should he 
do so he will become personally liable to the third 
party. In some cases, as we have seen, he is able to 
bind his principal even when he goes beyond instruc- 
tions, but he at the same time binds himself, and this 
is true though the act be done in perfectly good faith. 

417. When the Principal is Not Known. — If the 






AGENCY 237 

agent at the time of the transaction fails to disclose 
the name of his principal, the third party is at liberty 
to regard him as principal and hold him liable. Should 
the real principal be discovered later, however, the 
third party may hold him responsible also if he 
chooses. In a case in New York a committee ap- 
pointed by a political meeting ordered a public din- 
ner, and it was held that the members of the commit- 
tee were personally liable for payment of the bill. 

418. When an Agent Contracts Personally. — It some- 
times happens that a customer, being better ac- 
quainted with the agent than he is with the principal, 
prefers to have the agent assume certain responsibil- 
ity, and in such cases the agent becomes personally 
liable to him. 

419. Torts. — A tort has been defined as a civil 
wrong, an injury arising out of some breach of duty 
to a person and not a mere violation of a contract. 
The most common cases are assault, slander, fraud, 
libel, and trespass. An agent who is guilty of any of 
these must answer personally for same; an action of 
this kind is not brought against him as agent, but 
as an individual. 

420. Misfeasance and Nonfeasance. — Torts are di- 
vided into two classes, (1) misfeasance, meaning a 
misdeed, a positive wrong, such as assault, trespass, 



238 AGENCY 

etc., as named above. For any act of misfeasance 
the agent is personally liable to the third party; 
(2) nonfeasance, meaning the omission of some duty 
or act which should be performed. It is a general rule 
that agents are not responsible to the third party for 
acts of nonfeasance although he is liable to his prin- 
cipal. 

421. Liability of Principal to Agent. — The liability 
of the principal to the agent are matters of much im- 
portance and may be classed as follows : 

1. Liability as to compensation. 

2. Liability as to reimbursement. 

3. Liability as to indemnity. 

422. Compensation. — The principal is liable to the 
agent for the prompt payment of compensation ac- 
cording to the contract; it may be a fixed sum per 
week or month, a commission, or a definite sum for a 
certain task ; but the agent can collect nothing unless 
the principal has given a promise, either expressed or 
implied, that he will pay him. 

423. Near Relatives. — In case of near relatives, such 
as members of the same family, it is necessary to have 
an expressed promise to pay for services, otherwise 
the presumption will be that there was no intention to 
collect wages. 

424. Implied Promise. — A promise to pay for ser- 



AGENCY 239 

vices rendered need not be in writing, neither is it nec- 
essary that it should be spoken ; but it may sometimes 
be implied or understood from the action of the par- 
ties. For example, Mr. A works for you with your 
knowledge and without your objection; the law raises 
an implied promise on your part to pay him what his 
services are reasonably worth, even though you did 
not ask him to begin work. 

When the agent is employed at a fixed salary and 
additional duties are later imposed upon him he can 
not generally recover any extra compensation. 

425. Reimbursement. — The principal is liable for 
all money advanced for expenses by the agent in con- 
nection with the agency and must reimburse him for 
all such sums as have been legitimately expended for 
the benefit of the business. This rule does not apply 
to cases where the agent has undertaken to perform a 
certain task for a definite sum, for then he is expected 
to pay all expenses. 

426. Indemnity. — The agent may sometimes, while 
innocently following the instructions of his principal, 
trespass upon the rights of another. An agent is di- 
rected by his principal to remove certain goods from 
a building and, supposing them to belong to the prin- 
cipal, he proceeds to his task, but is sued for trespass 
by a third person to whom the property belongs. The 



240 AGENCY 

principal is bound to indemnify the agent for what- 
ever loss the suit has caused him. 

427. Liability of Principal to Third Party. — The prin- 
cipal is liable to a third party for all promises, repre- 
sentations, wrongful or negligent acts of the agent 
while acting within the range of his apparent author- 
ity. If the agent has wronged a third person while 
pursuing the work of the agency, either the third per- 
son or the principal must suffer, both being innocent 
parties; but the law says when one of two innocent 
parties must suffer, it shall be the one who gave the 
wrongdoer the power to commit the wrongful act. 

428. When the Principal is not Liable. — It should 
be remembered that the principal is not liable for the 
wrongful act of the agent when he goes aside from 
the scope of his employment, but the agent is then per- 
sonally responsible. 

429. Independent Contractor. — When an agent is 
employed by contract to perform an entire piece of 
work, the principal generally has no right to interfere 
or have any control over the work. In such cases the 
principal is not responsible for the acts of the agent 
or for the acts of any workmen or subagents the con- 
tractor may employ. 

430. Dissolution. — An agency may be terminated 
in the following manner : 



AGENCY 241 

1. By the act of the principal or agent. 

Lapse of time. 
Completing the object. 

2. By the operation of ] Death. 

the law » Insanity. 

Bankruptcy. 
Marriage. 

431. By Act of Principal. — It is a well established 
rule that the principal has power to dissolve the 
agency at any time he may desire, unless the agent's 
authority is in some way coupled with the subject 
matter. 

It matters not that the principal has given the 
agent a positive contract for a longer time, he still 
has the authority to terminate the agency at his pleas- 
ure. It should be observed, however, that having the 
authority does not necessarily give him the rights 
to do so, and he is liable in an action for damages if he 
has wronged the agent by suddenly terminating the 
agency without good cause. 

In case the agency is coupled with an interest in the 
subject matter, the principal can not then annul the 
contract at will. For example, goods are sent to a 
factor for sale, and the factor advances to the princi- 
pal a part of their value in cash. The agent now has 
an interest in the goods, and the principal can not re- 

16 



242 AGENCY 

voke the agency without returning the money ad- 
vanced. 

432. By Act of Agent. — The agent has the same priv- 
ilege of rescinding his contract as has the principal, 
but he also will be liable for breach of contract. 

483. By Lapse of Time. — An agency is often created 
to last for a definite time, such as one year or three 
months or until the happening of some event, and at 
the expiration of the time for which the contract was 
made the agency will terminate. 

434. Completing the Object. — If an agency is cre- 
ated to do some particular thing, such as to sell a 
house, the agency would be terminated when the house 
was sold ; or if the house was destroyed before the sale 
was made that would of course put an end to the 
agency. 

435. Death of Either Party. — The death of the prin- 
cipal always terminates the agency unless it is coupled 
with some interest in the property. The agency be 
ing a personal trust, the death of the agent must of 
course dissolve the contract, as it can not be carried 
on by legal representative. Death of agent also dis- 
charges all subagents. 

436. Insanity. — In case of insanity of either princi- 
pal or agent, the agency is at once brought to an end. 



AGENCY 243 

This does not apply when the agency is coupled with 
an interest in the business. 

437. Bankruptcy. — Bankruptcy of the principal 
terminates the agency for the reason that the princi- 
pal then loses all control of his property, and if the 
principal has no authority to sell or dispose of it, the 
agent would not of course have that right, except as 
stated above, where he has an interest in the prop- 
erty, and then he could sell in his own name if he de- 
sired. Bankruptcy of the agent will have the effect of 
terminating the authority of the agent to collect 
money or assume any position of responsibility; but 
he may do any formal act, such as signing papers in 
the name of his principal, etc. 

438. Marriage. — No person can authorize an agent 
to do a thing for him which he has not the legal right 
to do himself; therefore if a man gives an agent the 
power of attorney to sell his homestead, the same 
would become void in case of the marriage of the 
owner before the sale was completed, for then the 
wife acquires an interest in the property, and the hus- 
band could not give a good title to it without her 
consent. 

At common law the marriage of a woman revokes 
all agencies formerly created by her. 



244 AGENCY 

FORMS OF POWER OF ATTORNEY, ETC. 

We give below a number of forms of power of 
attorney from which selection can be made to fit al- 
most any case. 

No. 50. — Power of Attorney 

Know All Men by These Presents: That I, Geo. E. Boggs, of 
County of Custer and State of Nebraska, have constituted, or- 
dained, and made, and in my stead and place put, and by these 
presents do constitute, ordain, and make, and in my stead and 
place put C. W. Kerlin to be my true, sufficient, and lawful at- 
torney, for me and in my name and stead to (here set forth the 
purposes for which the power is given). 

Giving and hereby granting unto him, the said attorney, full 
power and authority in and about the premises; and to use all 
due means, course, and process in law, for the full, effectual, and 
complete execution of the business afore described; and in my 
name to make and execute due acquittance and discharge; and 
for the premises to appear, and the person of me the constituent 
to represent before any governor, judges, justices, officers, and 
ministers of the law whatsoever in any court or courts of judi- 
cature, and there on my behalf to answer, defend, and reply unto 
all actions, causes, matters, and things whatsoever relating to the 
premises. Also to submit any matter in dispute, respecting the 
premises, to arbitration or otherwise; with full power to make 
and substitute for the purposes aforesaid, one or more attorneys, 
under him, my said attorney, and the same again at pleasure to 
revoke. And generally to say, do, act, transact, determine, ac- 
complish, and finish all matters and things whatsoever relating 
to the premises, as fully, amply, and effectually, to all intents 
and purposes, as I, Geo. E. Boggs, the said constituent, if pres- 
ent, ought or might personally, although the matter should re- 
quire more special authority than is herein comprised, I, Geo. 
E. Boggs, the said constituent ratifying, allowing, and holding 
firm and valid all whatsoever my said attorney or his substitutes 
shall lawfully do or cause to be done in and about the premises, 
by virtue of these presents. 

In Witness Whereof, I have hereunto set my hand and seal 






AGENCY 245 

this second day of May, in the year of our Lord, eighteen hun- 
dred and ninety-nine. 

Geo. E. Boggs. 
Signed, sealed, and delivered in the presence of us 

Roy S. Erricsson. 

Mark Fletcher. 

No. 51. — Power of Substitution 

Know All Men by These Presents: That I, W. E. Morley, by 
virtue of the power and authority to me given, in and by the 
letter of attorney of F. E. Lewis, which is hereunto annexed, do 
make, substitute, and appoint A. V. Wilson as well for me as the 
true and lawful attorney and substitue of the said constituent 
named in the said letter of attorney, to do, execute, and perform 
all and everything requisite and necessary to be done, as fully, 
to all intents and purposes as the said constituent or I myself 
could do if personally present; hereby ratifying and confirming 
all that the said attorney and substitute hereby made shall do in 
the premises by virtue hereof and of the said letter of attorney. 

In Witness Whereof, I have hereunto set my hand and seal 
this 10th day of August, in the year of our Lord one thousand 
eight hundred and ninety-nine. 

W. E. Morley. 
Executed and delivered in the presence of 

H. E. RlSHEL. 

The State of Nebraska, ) 

> ss 
Hall County. ) ' 

On this 12th day of August, A.D. 1899, before me, a notary 
public duly commissioned and qualified for and residing in said 
county, personally came W. E. Morley, to me known to be the 
identical person whose name is affixed tp the foregoing instru- 
ment, and acknowledged the said instrument to be his voluntary 
act and deed. 

Witness my hand and official seal the day and year last above 
written. 

C. E. Hutchinson, 
[seal] Notary Public. 

My commission expires January 12, 1903. 

No. 52. — Power of Attorney in a Shorter Form 

Know All Men by These Presents: That I, E. H. Sorenson, 
have made, constituted, and appointed, and by these presents do 



246 AGENCY 

make, constitute and appoint C. F. Ziegler my true and lawful 
attorney for me and in my name, place, and stead to (here de- 
scribe the thing to be done), giving and granting unto my said 
attorney full power and authority to do and perform all and 
every act and thing whatsoever requisite and necessary to be 
done in and about the premises, as fully to all intents and pur- 
poses as I might or could do if personally present, with full 
power of substitution and revocation, hereby ratifying and con- 
firming all that my said attorney or his substitute shall law- 
fully do or cause to be done by virtue hereof. 

In Witness Whekeof, I have hereunto set my hand and seal 
this 9th day of September, in the year one thousand eight hun- 
dred and ninety-nine. 

E. H. Sorensen. 
Executed and delivered in the presence of 
Herbert Wilson. 

No. 53. — Full Power of Attorney to Demand and Recover Debts 

Know All Men by These Presents: That I, H. C. Bancroft, 
have constituted, ordained, and made, and in my stead and place 
put, and by these presents do constitute, ordain, and make, and 
in my stead and place put, Essie Nordgren to be my true, suf- 
ficient, and lawful attorney for me and in my name and stead, 
and to my use, to ask, demand, levy, require, recover, and re- 
ceive of and from all and every person or persons whomsoever 
the same shall or may concern, all sum or sums of money, debts, 
goods, wares, merchandise, effects, and things, whatsoever and 
wheresoever they shall and may be found due, owing, payable, 
belonging, and coming unto me, the constituent, by any ways and 
means whatsoever. 

Giving and hereby granting unto my said attorney full and 
whole strength, power, and authority in and about the premises; 
and to take and use all due means, course, and process in the 
law, for the obtaining and recovering the same; and of recov- 
eries and receipts thereof and in my name to make, seal, and 
execute due acquittance and discharge; and for the premises to 
appear, and to represent, before any governor, judges, justices, 
officers, and ministers of the law whatsoever, in any court or 
courts of judicature, and there on my behalf to answer, defend, 
and reply unto all actions, causes, matters, and things whatso- 
ever relating to the premises. Also to submit any matter in dis- 



AGENCY 247 

pute to arbitration or otherwise with full power to make and 
substitute one or more attorneys under my said attorney, and 
the same again at pleasure to revoke. And generally to say, do, 
act, transact, determine, accomplish, and finish all matters and 
things whatsoever relating to the premises as fully, amply, ef- 
fectually, to all intents and purposes as I, the said constituent, 
if present, ought or might personally; although the matter 
should require more special authority than is herein comprised, 
I the said constituent ratifying, allowing, and holding firm and 
valid all and whatsoever my said attorney or his substitutes 
shall lawfully do, or cause to be done, in and about the prem- 
ises by virtue of these presents. 

In "Witness Whereof, I have hereunto set my hand and seal 
this 5th day of November, in the year of our Lord one thousand 
nine hundred. 

H. C. Bancroft. 
Signed, sealed, and delivered in the presence of 
Eva Kirchkoff. 

No. 54. — Power of Attorney to Sell and Deliver Chattels 

Know All Men by These Presents: That I, the undersigned, 
for value received, do hereby constitute and appoint V. B. Reeves 
to be my true and lawful attorney, for me and in my name and 
behalf to sell, transfer, and deliver unto Edith Blatchford or any 
other person or persons (here describe the things to be sold). 

In Witness Whereof, I have hereunto set my hand and seal 
this 14th day of December, nineteen hundred. 
Witness: W. P. Zumbrunn. 

Nellie A. Cedarland. 

No. 55. — Power of Attorney to Sell Shares of Stock, with Ap- 
pointment by Attorney or Substitute 

Know All Men by These Presents: That, for value received, 
I, Thos. C. Leming, of Pottawattamie county, Kan., do hereby 
make, constitute, and appoint irrevocably, Wesley Payne my true 
and lawful attorney, with power of substitution, for and in my 
name and on my behalf to sell, assign, and transfer unto Frank 
Fisk fifty shares now standing in my name in the capital stock 
of the Grand Island Gas Co. And my said attorney is fully em- 
powered to take all necessary steps for the said assignment and 
transfer. 



248 AGENCY 

Witness my hand and seal this 7th day of January, 1902. 

Thos. C. Leming. 
Signed, sealed, and delivered in the presence of 
Leva Brown. 
For value received I appoint, irrevocably, W. W. Sankey as my 
substitute, with all the powers above given to me. 
Witness my hand and seal, August 2, 1902. 

Wesley Payne. 
Signed, sealed, and delivered in the presence of 
Anna McKay. 

No. 56. — Power of Attorney to Subscribe for Stock 

Know All Men by These Presents: That I, the undersigned, 
do hereby irrevocably constitute and appoint Frank Smith to bo 
my true and lawful attorney, for me and in my name and behalf 
to subscribe for twenty shares in the capital stock of the Second 
National Bank of Grand Island, Nebraska. And further, one oi 
more persons under him to substitute with like power. 

In Witness Whereof, I have hereunto set my hand and sea? 
this 4th day of March, 1902. 

Witness present: Fred Levi. 

Gertrude Humphrey. 

No. 57. — Proxy, or Power of Attorney to Vote 

Know All Men by These Presents: That I, O. N. Southwick, 
of Hartington, Nebraska, do hereby appoint C. N. Cole to be my 
substitute and proxy for me, and in my name and behalf to vote 
at any election of directors or other officers, and at any meeting 
of the stockholders of the First National Bank of Grand Island, 
Nebraska, as fully as I might or could were I personally present. 

In Witness Whereof, I have hereunto set my hand and seal 
this 11th day of May, 1902. 

Witness present: O. N. Southwick. 

Abraham Ulry. 

No. 58. — Proxy, Revoking All Previous Proxies 

Know All Men by These Presents: That I, the undersigned, 
stockholder in the First National Bank, Grand Island, Neb., do 
hereby appoint W. F. Zumbrunn my true and lawful attorney, 
with power of substitution, for me and in my name to vote at 
the meeting of the stockholders in said company to be held at 



AGENCY 249 

Grand Island, January 1, 1903, or at any adjournment thereof, 
with all the powers I should possess if personally present, hereby 
revoking all previous proxies. 

November 1, 1902. B. V. Reeves. 

No. 59. — Proxy with Affidavit of Ownership, in Use in Some 

States 

Know All Men by These Presents: That I, Luther Owens, 
do hereby constitute and appoint J. C. Cherney my attorney and 
agent for me and in my name, place, and stead, to vote as my 
proxy at an election of directors of the Chicago Lumber Co., ac- 
cording to the number of votes I should be entitled to vote if then 
personally present. 

In Witness Whereof, I have hereunto set my hand and seal 
this 3d day of January, one thousand eight hundred and ninety- 
nine. 

Luther Owens. 
Signed, sealed, and delivered in the presence of 
Carrie Cole. 

I do swear (or affirm) that the shares on which my attorney 
and agent in the above proxy is authorized to vote do not belong 
and are not hypothecated to the said company, and that they are 
not hypothecated or pledged to any other corporation cr person 
whatever; that such shares have not been transferred to me for 
the purpose of enabling me to vote thereon at the ensuing elec- 
tion, and that I have not contracted to sell or transfer them 
upon any condition, agreement, or understanding, in relation to 
my manner of voting at the said election. 

Luther Owens. 
Sworn to this 4th day of January, 1899, before me, 
J. G. B. Martin, 

Notary Public. 

No. 60. — Power to Receive Dividend 

Know All Men by These Presents: That I, F. E. Young, of 
Atlanta, Neb., do authorize, constitute, and appoint E. E. Stepp 
to receive from the Union Pacific Railroad Co. the dividend now 
due to me on all stock standing to my name on the books of the 
said company, and receipt for the same; hereby ratifying and con- 
firming all that may lawfully be done in the premises by virtue 
hereof. 



250 AGENCY 

Witness my hand and seal this 9th day of February, 1902. 

F. E. Young. 
Signed, sealed, and delivered in the presence of 
Mamie Dunn. 

No. 61. — Power of Attorney to Sell Land 

Know All Men by These Presents: That I, the undersigned, 
C. I. Brown, of Stamford, Nebraska, have this day made, consti- 
tuted, and appointed, and by these presents do make, constitute, 
and appoint C. M. Hadley my true and lawful attorney, for me and 
in my name to sell and dispose of absolutely in fee simple the 
following described real estate or any part thereof, situated in 
the County of Hall and State of Nebraska, to-wit: lots four (4), 
five (5), and six (6), in block ten (10), Baker's addition to the 
city of Grand Island, according to the recorded plat thereof, for 
such price and to such person or persons as he shall think fit, 
and also for me and in my name and as my act and deed to sign, 
execute, acknowledge, and deliver such deed or deeds of convey- 
ance for the absolute sale and disposal thereof, with such clauses, 
covenants, and agreements to be therein contained as the said 
attorney shall think fit or expedient, hereby ratifying and con- 
firming all such deeds, conveyances, bargains, and sales which 
shall at any time hereafter be made by said attorney touching 
or concerning the premises. 

In testimony whereof, I have hereunto set my hand and seal, 
this 6th day of June, 190L 

Witness: C. I. Brown. 

Albert Dudek. 



AGENCY 

REVIEW QUESTIONS 

Define agency. 

Who are the parties? 

Into what classes is agency divided? 

Define each. 

Who is a professional agent? 



AGENCY 251 

Is a lawyer an agent? 

Who is an attorney in fact? 

How is an agency created? 

What is a power of attorney? 

Must an agent be appointed in any special way? 

Is an agency ever implied; if so, when? 

Is a notice to an agent equivalent to sending it to 
principal? 

What are some of the principal duties of an agent? 

What is meant by loyalty? 

To what extent must he obey instructions? 

In whose name should he deposit money? 

When should he follow the usages of trade? 

May the agent deal privately in same business of 
the agency? 

To whom do the profits belong if he deals privately? 

Who bears the losses of the agent's private deals? 

When is the agent not entitled to collect his com- 
pensation? 

When does the agent become liable to the third 
party? 

If he transcends his authority whom will he bind? 

When the principal is unknown, whom will the 
third party charge? 

When the agent contracts personally, whom will he 
bind? 



252 AGENCY 

What is a tort? 

What is misfeasance? 

What is nonfeasance? 

For what is the principal liable to the agent? 

In the absence of a contract, are members of the 
same family supposed to charge each other for work? 

What is an implied promise? 

To what extent is the principal liable to the agent 
for reimbursement? 

If the agent suffers loss on account of the principal, 
what indemnity can he collect? 

When is the principal liable to the third party for 
the act of the agent? 

When is the principal not liable? 

Who is liable for agent's acts under an independent 
contract? 

How may an agency be terminated? 

When may a principal revoke an agency? When 
not? 

Is either party liable for damages if he breaks off 
the contract without cause? 

What is meant by terminating by lapse of time? 

By completing the object? 

How does marriage of either party affect an 
agency? 



PARTNERSHIP 253 

CHAPTER XXIV 

PARTNERSHIP 

439. Definition. — A partnership is the relation ex- 
isting between persons who combine their property, 
labor, skill, or credit for the purpose of conducting a 
business for their joint benefit. It is sometimes called 
a copartnership. 

A partnership very closely resembles an agency, in- 
asmuch as each active partner is regarded as a gen- 
eral agent for the firm. 

440. What Constitutes a Partnership. — There must 
be a joint ownership of the business itself in order to 
constitute a partnership. A joint purchase of goods 
when each party takes a distinct part of same is not 
a partnership, neither would it be a partnership for 
one to take the management of the business and re- 
ceive one-half the profits as pay for his services, for in 
that case the real owner could discharge the manager 
at any time and he would then have no interest in the 
business. 

It matters not what each invests, for one may fur- 
nish all the money or credit and another only skill ov 
labor, and yet it will be a partnership if it is under- 
stood that each is a part owner of the business. If 



254: PARTNERSHIP 

they divide the profits and mutually bear the losses 
they are beyond question partners. 

441. How Formed. — No special kind of contract is 
necessary to create a partnership, and it may be 
formed by an oral agreement or by a written document 
which may or may not have a seal, but the liability and 
authority of the partners begin at the time of the 
actual formation of the partnership, even though the 
agreement be not written until a later date. In case 
the parties hold themselves out to the world as part- 
ners, the law will regard them as such, whether they 
really are or not. 

442. What the Contract Should Contain. — The con- 
tract between partners is called articles of copartner- 
ship (see forms at the end of this chapter) and should 
always be in writing so as to avoid any possible mis- 
understanding, although the law does not require it 
to be written. Great care should be taken to see that 
the written contract contains all the terms agreed 
upon. Among other things it should contain the fol- 
lowing points : 

1. Name of principals. 

2. Nature of the business. 

3. Duration of partnership. 

4. Amount contributed by each partner. 

5. Duties of each partner. 



PARTNERSHIP 255 

6. Rights of each partner. 

7. Division of profits and losses. 

443. Other Points. — The agreement may also contain 
such other points as the nature of each individual case 
seems to require. It may provide that the amount 
each partner is entitled to withdraw from the busi- 
ness shall be limited to a certain specified sum. It 
may designate a particular method to be used in keep- 
ing the accounts. It may provide that neither part- 
ner shall sign any obligation as surety without the 
consent of the other, and that neither party is to sell 
or transfer his interest to another. 

444. Classes of Partners. — Partners are divided as 
to kinds into four separate classes, as follows : 

1. General. 

2. Dormant. 

3. Nominal. 

4. Limited. 

445. General Partner. — A general partner is some- 
times known as an ostensible or real partner. He is 
one whose name appears in the business and who is in 
fact a partner. He shares the losses of the business 
and participates in the gains. 

446. Dormant Partner. — A dormant partner is often 
called a silent or concealed partner.' He endeavors to 
keep his connection with the business a secret so that 



256 PARTNERSHIP 

he may share the profits of the business, but not be 
held liable in case the firm should fail. Should his 
position become known he is liable the same as a gen- 
eral partner, even if the creditors did not know he was 
a member of the firm at the time of the transaction. 
This rule is based on the theory that the dormant part- 
ner participates in the gains of the firm which should 
be used in discharging the firm's debts. 

447. Nominal Partner. — A nominal partner is one 
who exists in name only. A partner of this kind puts 
no money in the business and in fact has no interest 
whatever in it, but only lends the use of his name and 
credit as an accommodation to the firm. A nominal 
partner receives none of the profits of the business, 
but in case of failure he would be responsible for the 
debts, as he has held himself out to the world as a 
real partner. He would not be held liable, however, 
unless credit was given the firm on account of his re- 
sponsibility. 

448. Limited or Special Partner. — A limited partner 
is one whose liability is limited to the amount of his 
investment. This kind of a partnership is unknown 
to common law, but many of the states have provided 
for same by statutory enactment, which must be 
strictly complied with. 

The provisions under which such a partnership 



PARTNERSHIP 257 

may be formed in Nebraska, as well as many other 
states, are as follows : 

1. Besides the limited partners there must be one 
or more general partners, who are the only ones au- 
thorized to transact the business. 

2. The names of the limited partners must not ap- 
pear in the name of the firm. 

3. The investment of the limited partner must be 
actually paid in. 

4. The terms of agreement between the partners 
must be written and acknowledged. It must also be 
recorded in the county records and published in two 
newspapers in the county for six consecutive weeks. 
Before forming a partnership of this kind the stat- 
utes should be consulted. 

449. Who May be Partners. — Any one who is compe- 
tent to make an ordinary contract may enter into the 
contract of partnership. 

450. Partnership Name. — The partners may select 
any name they choose for the title of the firm, but in 
some states they are not allowed to add to the name 
"& Co." when in fact there are no other members in 
the firm. For example, if Brown and Smith are part- 
ners they would not be allowed to use the firm name 
of Brown, Smith & Co., although they could use 
Brown & Co. It is necessary to use the names of the 

17 



258 PARTNERSHIP 

individuals constituting the partnership in all suits 
at law. 

451. Duration. — The length of time for which the 
partnership is to continue is often stated in the 
articles of agreement. It may be for life, or for a 
stated number of years, or for a single transaction, 
or, if no limit is decided upon, it will continue at the 
pleasure of the parties and may be terminated by the 
withdrawal of any one. 

In case it is desired to continue the partnership be- 
yond the life of the partners, it must be expressly 
stated in the agreement, otherwise it will be dissolved 
by the death of any member of the firm. 

452. Partners are Joint Owners. — The partnership 
property is owned jointly by all members of the firm, 
and each is entitled to the possession of it. While a 
partner can not point out any portion of the property 
and say "this is mine," yet he has the power to sell all 
personal property. Any real estate purchased by 
partnership funds belongs to the firm and is liable 
for the firm's debts. The widow of a deceased mem- 
ber of the firm has no dower interest in the firm's real 
estate until the partnership debts are paid. 

453. Profits and Losses. — It is usually determined 
by the partners at the beginning just how and in what 
proportion the gains and losses of the business shall 



PARTNERSHIP 259 

be divided, but in the absence of an agreement upon 
this point, the presumption will be that they intended 
to divide them equally. The fact that one party has 
brought more capital into the business than the other, 
or that one has furnished all the capital and the other 
only skill or knowledge does not change this rule. 
Sharing in the gains and losses of a business is re- 
garded as one of the surest tests of the existence of a 
partnership. 

454. Powers of Each Partner. — Each partner is re- 
garded as a general agent for the firm, and so long as 
he confines his operations to matters which properly 
belong to the business all the other partners will be 
bound by his acts. 

In matters entirely outside of the partnership busi- 
ness he can not bind the firm, and the third person 
with whom he deals is supposed to take notice of this 
fact. For example, a firm engaged in the wholesale 
drug business would not be bound by one of the part- 
ners who contracted to buy a car load of horses for 
the firm; and the seller of the horses should take 
notice that the partner is going beyond the scope of 
the firm's regular business, and, while the individual 
partner may be held to the contract, he can not bind 
the firm. 

455. When the Firm will be Bound. — Any fraud or 



260 PARTNERSHIP 

deceit practiced by individual members of a firm while 
within the range of the partnership business will be 
binding on the firm. 

As before stated, each member has a right of pos- 
session of all the firm's goods or property and may 
bind the partnership by selling the same or turning it 
over in settlement of a debt. Each member may give 
negotiable paper or borrow money for the firm, and 
even though this is done against the wishes of the 
other partners, the firm will be bound so long as the 
third party is not aware of that fact and the transac- 
tion is apparently within the range of the firm's gen- 
eral business. 

456. When the Firm Will Not be Bound. — One part- 
ner can not bind the firm in the transfer of real estate, 
as such transfer can not be made by signing the firm's 
name to a deed, but requires the individual signature 
of each partner. Should one partner alone sign it he 
would convey his interest only. 

One partner can not bind the firm by submitting to 
arbitration any matters arising from the business. 

One partner can not bind the firm in any contract 
when the third party knows the partner is defrauding 
the firm. 

One partner can not bind the others by any con- 
tract required to be under seal. 



PARTNERSHIP 261 

There is some conflict of authority as to whether 
one partner can make a general assignment of the 
firm's entire assets for the benefit of creditors, but the 
better opinion seems to be that he can. 

457. Individual Liability. — One of the most prom- 
inent features in the partnership business is the indi- 
vidual liability of each partner. Among themselves 
the partners may make any agreement they choose as 
to the proportion of loss or gain each shall share, and 
it will be binding so far as they are concerned, but 
such a contract will have no effect upon the rights of 
third parties. Each partner is bound to every cred- 
itor of the firm for the full payment of the debts, and 
this is true no matter how small an interest the part- 
ner holds, except in case of "limited partner." 

The fund belonging to the partnership must first 
be exhausted and if that is not sufficient then the pri- 
vate property of each individual partner is liable for 
the payment of the balance due. 

On account of this great responsibility, men of 
wealth usually hesitate in entering into a partnership ; 
in fact, that form of combining capital is fast disap- 
pearing, and the corporation is taking its place. 

458. Rights of Creditors. — The property of the part- 
nership is held for the payment of the partnership 
debts, and private creditors of the partners have no 



262 PARTNERSHIP 

claim upon this property until the debts of the firm 
have been satisfied ; but should anything remain after 
paying the partnership debts the private creditors may 
then come in and levy upon the same. 

To illustrate, A, B, and C are partners. A owes you 
a large sum on a private debt, and failing to collect 
it from him personally you try to levy on his inter- 
ests in the partnership business, but this you can not 
do until all the partnership debts are paid. 

459. Dissolution. — A dissolution of a partnership 
may be effected in any of the following ways : 

1. By the expiration of the period for which it was 
organized. 

2. By mutual consent of the parties. 

3. By the act of one of the partners. 

4. By the death, insanity, or bankruptcy of one. of 
the partners. 

5. By the decree of court. 

460. By Expiration. — If a partnership is organized 
for a definite time or for a particular transaction it 
will be at an end when the time expires or the work is 
accomplished. 

461. By Mutual Consent. — Like any other agree- 
ment, a partnership is formed by the voluntary con- 
sent of all the partners, and if they at any time mutu- 



PARTNERSHIP 263 

ally agree to dissolve the same they have a perfect 
right to do so. 

462. By the Act of One Partner. — Any act by one of 
the partners which severs the unity of interest has the 
effect of immediately dissolving the partnership. 
Such act may consist of assigning his interest in the 
business, engaging in other business which is in com- 
petition with the partnership, in refusing to perform 
his part of the agreement, etc. 

In case a partner by any of these acts is guilty of a 
breach of contract with the other partners, he is liable 
for any loss resulting from same. 

463. By Death, Insanity, etc. — A partnership con- 
sists of an agreement by which each partner contracts 
with all the other partners to do certain things. The 
agreement has as many sides as there are partners, 
and if by death, insanity, bankruptcy, or any other 
reason one of the partners is rendered incapable of 
performing his part of the contract, the partnership 
at once comes to an end. 

464. By Decree of Court. — When a satisfactory dis- 
solution can not be agreed upon between the partners, 
the matter can be taken to a court of equity and a 
decree of dissolution will be granted. The court will 
not usually interfere except in cases where it can be 
shown that one of the partners is guilty of fraud, 



264 PARTNERSHIP 

gross immorality, lack of good faith, or some other 
serious charge. 

465. What Powers Cease on Dissolution. — When a 
partnership has been dissolved certain powers of the 
partners cease, and they no longer have the right to 
use the property of the firm except in such transac- 
tions as look toward winding up the affairs of the 
concern. They can not create new obligations of any 
kind nor change those which are already in force. 

466. The Powers which Remain. — While the partners 
can not create any new obligation after dissolution, 
they have a right to collect all bills and pay off all ob- 
ligations and settle up the affairs of the firm. 

No partner has a right to turn any of the firm's 
money to his own use, but it must all be applied to 
the discharge of the obligations of the partnership. 
Whatever remains after the debts are paid will be 
divided according to agreement. 

467. New Powers Created. — On dissolution the part- 
ners assume an entirely new relation to each other. 
While their old powers as partners are gone, certain 
new powers are given them to enable them to close 
up the business. While the partnership continued 
the partners are one ; but now each is a separate indi- 
vidual and they are tenants in common, that is, own- 



PARTNERSHIP 265 

ers in common, each possessing an individual interest 
in the property. 

When dissolution is caused by death of one of the 
partners his personal representative becomes a tenant 
in common with the survivors, but he has no authority 
in winding up the affairs of the firm, although he may 
demand an accounting for all funds and property. 

468. Notice. — On the dissolution of a partnership, 
notice should be sent to all persons with whom the 
firm has dealings. The object of this is to protect 
the partners who are retiring from the business. If 
no notices were sent, a third party might sell the new 
firm goods on the strength of the credit of a retiring 
partner, supposing him to be still in the business, and 
should the new firm fail to meet the bill the retiring- 
partner would be held for same. It is also customary 
to publish notice of dissolution in some newspaper of 
general circulation. 

No. 62. — Articles of Copartnership 

Articles of copartnership made at Grand Island, Nebraska, 
this 1st day of August, A.D. 1902, between F. C. L. Hackenberger, 
Vern Parish, and A. 0. Johnson, all of said city, witnesseth: 

(1) The parties hereby form a partnership, for a period of ten 
years from the 1st day of September, 1902, under the firm name 
of Hackenberger, Parish & Co., in the trade and business of mer- 
chants and dealers in dry goods in said city of Grand Island. It 
may be terminated at any time by any of the partners on ten 
months' previous notice. The capital is fixed at nine thousand 
dollars ($9,000), and brought in by the partners in the following 
proportion: Four thousand dollars ($4,000) each by said F. C. L. 



266 PARTNERSHIP 

Hackenberger and Vern Parish, and one thousand dollars ($1,000) 
by said A. O. Johnson, and the same shall be paid in as follows: 
Two thousand dollars ($2,000) each by said Hackenberger and 
Parish on said 1st day of September, and two thousand dollars 
($2,000) each additional, within sixty days thereafter, and one 
thousand dollars ($1,000) by said Johnson on the 1st day of Jan- 
uary, 1903: and in appropriating profits and losses, interest shall 
first be allowed to said Hackenberger and Parish respectively, 
at six per cent, on the sums paid in by them from the date of pay- 
ment until said 1st day of January, 1903, or such time as said 
Johnson shall have paid in said sum of one thousand dollars 
($1,000). 

The profits and losses shall be apportioned among the part- 
ners in the proportion to their respective contributions to the 
capital, and the profits shall be divided on the first Monday of 
April in each year. 

Said Hackenberger and said Parish may draw from the con- 
cern for their own use, not to exceed in any quarter, One Hun- 
dred Dollars ($100), on which interest at the rate of six per cent 
per annum shall be charged in dividing the profits. A full in- 
ventory and balance sheet shall be made up on the first Mon- 
day of April, and on the same day of each year thereafter and a 
record thereof kept. Said Johnson shall have full charge of said 
business, and devote his entire time to the same, and shall render 
an account to his copartners whenever required, and shall be 
paid a salary of One Hundred Dollars ($100) per month, payable 
on the last day of each month. The other partners shall not be 
required to devote any time to said business. 

No partner shall make himself personally liable, or sign indi- 
vidually for any one, any instrument as surety, guarantor, or the 
like, without first obtaining the written consent of the other 
partners. 

Upon the dissolution of the partnership from any cause ex- 
cept death, each partner shall have the privilege of submitting a 
bid for the entire business and good will, and the one making 
the highest offer shall succeed to the said business, and after the 
debts are paid the partners retiring shall receive such part of the 
balance of the amount bid by the partner succeeding to the busi- 
ness as his interest in the business bears to the entire capital. 



PARTNERSHIP 267 

In Witness Whereof, We hereunto subscribe our names this 
1st day of August, 1902. 

F. C. L. Hackenberg^r. 
Verx Parish. 
A. 0. Johnson. 

VARIOUS COVENANTS AND CLAUSES WHICH MAY BE 

INTRODUCED IN ARTICLES OF COPARTNERSIHP 

ACCORDING TO CIRCUMSTANCES 

No. 63. — Not to Trust Any One Whom the Copartner Shall 

Forbid 

And that neither of the said parties shall sell on credit any 
goods or merchandise belonging to the said joint trade to any 
person or persons, after notice in writing from the other of the 
said parties, that such person or persons are not to be credited 
or trusted. 

No. 64. — Not to Release Any Debt Without Consent, Etc. 

And that neither of the said parties shall, without the consent 
of the other, release or compound any debt or demand, due or 
coming to them on account of their said partnership, except for 
so much as shall be actually received and brought into the stock 
or cash account of the said partnership. 

No. 65. — Not to Be Bound or Endorse Bulls, Etc., for Any One 
Without Consent, Etc. 

And that neither of the said parties shall, during this copart- 
nership, without the consent of the other, enter into any deed, 
covenant, bond, or judgment, or become bound as bail or surety, 
or give any note, or accept or endorse any bill of exchange for 
himself and partner without the consent of the other first had 
and obtained, with or for any person whatsoever. 

No. 66. — Neither Party to Assign His Interest, Etc. 

And it is agreed between the said parties that neither of the 
said parties shall, without the consent of the other obtained in 
writing, sell or assign his share or interest in the said joint 
trade to any person or persons whatsoever. 



268 PARTNERSHIP 

No. 67. — Principal Clerk to Be Receiver of Moneys, Etc. 

That the principal clerk for the time being shall be the gen- 
eral receiver of all the money belonging to the said joint trade, 
and shall pay out of same all demands ordered by the said par- 
ties, and shall from time to time pay the surplus cash to such 
banker as the said partners shall nominate. 

No. 68. — Parties to Draw Quarterly, Etc. 

That it shall be lawful for each of them to take out of the 
cash of the joint stock the sum of two hundred dollars quarterly, 
to his own use, the same to be charged on account, and neither 
of them shall take any further sum for his own separate use 
without the consent of the other in writing; and any such fur- 
ther sum taken with such consent shall draw interest at the rate 
of ten per cent, and shall be payable, together with the interest 
due, within ninety days after notice in writing given by the 
other of the said parties. 

No. 69. — Another Form of Articles of Copartnership 

Articles of Agreement, Made the 10th day of December, one 
thousand eight hundred and ninety-nine, between Carl M. Cook, 
of Coyville, Kansas, and James Brittain, of Bendina, Kansas, as 
follows: The said parties above named have agreed to become 
copartners in business, and by these presents do agree to be 
copartners together under the name or firm of Cook & Brittain, 
in the general merchandise business and in the buying, selling, 
and vending all sorts of goods, wares, and merchandise to the 
said business belonging; their copartnership to commence on the 
1st day of January, 1900, and to continue three years, and to that 
end and purpose the said Carl M. Cook agrees to contribute 
$3,000 to the capital stock, and the said James Brittain agrees to 
contribute $2,000 to be used and employed in common between 
them for the support and management of the said business, to 
their mutual benefit and advantage. And it is agreed by and be- 
tween the parties to these presents that at all times during the 
continuance of their copartnership they and each of them will 
give their attendance and do their, and each of their, best en- 
deavors, and to the utmost of their skill and power exert them- 
selves for their joint interest, profit, benefit, and advantage, and 
truly employ, buy, and sell, with their joint stock, and the in- 
crease thereof, in the business aforesaid. 



PARTNERSHIP 269 

And also that they shall and will at all times during the said 
copartnership bear, pay, and discharge equally between them all 
rents and other expenses that may be required for the support 
and management of the said business; and that all gains, profit, 
and increase that shall come, grow, or arise from or by means 
of their said business shall be divided between them in propor- 
tion to the investment; and all loss that shall happen to their 
said joint business, by ill commodities, bad debts, or otherwise 
shall be borne and paid between them in the like proportion. 

And it is agreed by and between the said parties that there 
shall be had and kept at all times during the continuance of their 
copartnership perfect, just, and true books of accounts, wherein 
each of the said copartners shall enter in and set down, as well all 
money by them or either of them received, paid, laid out, and 
expended in and about the said business, as also all goods, wares, 
commodities, and merchandise by them or either of them bought 
or sold by reason or on account of the said business, and all 
other matters and things whatsoever to the said business and 
the management thereof in anywise belonging; which said books 
shall be used in common between the said copartners, so that 
either of them may have access thereto without any interruption 
or hindrance of the other. And also the said copartners once in 
six months, or oftener if necessary, shall make, yield, and render 
each to the other, a true, just, and perfect inventory and account 
of all profits and increase by them, or either of them, made, and 
of all losses by them, or either of them, sustained; and also all 
payments, receipts, disbursements, and all other things by them 
made, received, disbursed, acted, done, or suffered in this said 
copartnership and business, and the same account so made shall 
and will clear, adjust, pay, and deliver, each to the other, at the 
time, their just share of the profits so made as aforesaid. 

And the said parties hereby mutually covenant and agree to 
and with each other, that, during the continuance of the said co- 
partnership, neither of them shall nor will endorse any note, or 
otherwise become surety for any person or persons whomsoever, 
without the consent of the other of the said copartners. And at 
the end or other sooner termination of their copartnership, the 
said copartners, each to the other, shall and will make a true, 
just, and final account of all things relating to their said busi- 
ness, and in all things truly adjust the same; and all the stock 
and stocks, as well as the gains and increase thereof, which shall 



270 PARTNERSHIP 

appear to be remaining, either in money, goods, wares, fixtures, 
debts, or otherwise, shall be divided between them, in the pro- 
portions aforesaid. 

Carl M. Cook. 

James Brittain. 
Witness: 

W. C. PORATH. 

No. 70. — Certificate of a Limited Partnership 

This is to Certify, That the undersigned have, pursuant to 
the provisions of the statutes of the State of Nebraska, formed a 
limited partnership, under the name or firm of Scheie & Noren; 
that the general nature of the business to be transacted is (de- 
scribe the business), and that John Scheie is the general partner 
and G. L. Noren is the special partner, and that the said G. L. 
Noren has contributed the sum of five thousand dollars ($5,000) 
as capital towards the common stock, and that the said partner- 
ship is to commence on the 1st day of January, 1903, and is to 
terminate on the 1st day of January, 1907. 

Dated this 23d day of December, one thousand nine hundred 
two. 

John Scheie. 
Witness: G. L. Noren. 

Katie Brety. 

State of Nebraska, ) 

> ss 
County of Hall. ) 

On the 24th day of December, one thousand nine hundred and 

two, before me came John Scheie and G. L. Noren, known by me 

to be the individuals described in and who executed the above 

certificate, and they severally acknowledged that they executed 

the same. 

D. D. Kellogg, 

[seal] Notary Public. 

My commission expires February 21, 1906. 

State of Nebraska. ) 

yss. 
County of Hall. j 

John Scheie, the general partner named in the above certifi- 
cate, being duly sworn, doth depose and say that the sum speci- 
fied in the said certificate to have been contributed by the spe- 



PARTNERSHIP 271 

cial partner to the common stock has been actually and in good 
faith paid in cash. 

Sworn this 25th day of December, 1902, before me, 

C. H. Menck, 
County Cleric. 



PARTNERSHIP 
REVIEW QUESTIONS 

Define partnership. 

In what way does it resemble an agency? 
What may be invested? 
How may it be formed? 
What is the partnership contract called? 
What should it contain? 
Name the different classes of partners. 
Define a general partner and state his liability. 
What is a dormant partner and what is his lia- 
bility? 

Describe a nominal partner and state his liability. 

Who is a limited partner and what is his liability? 

How is a limited partnership formed? 

W T ho may be partners? 

Are there any restrictions on the firm name? 

For how long may a partnership continue? 

Who holds the title to the partners' property? 

How are the losses and gains divided? 

What power has each partner to bind the firm? 



272 FAKTNERSHIP 

When will the firm not be bound? 

To what extent are individual partners bound by 
the debts of the firm? 

Is the partnership property liable for the payment 
of private debts of the partners? 

How may a partnership be dissolved? 

What powers of partners cease at dissolution? 

What powers remain? 

What new powers are created? 

Is it necessary to send notice of dissolution? 

For what reason is notice sent? 






CORPORATIONS 273 

CHAPTER XXV 

CORPORATIONS 

469. Definition.— A corporation is an artificial per- 
son created under the authority of law. It consists of 
a number of natural persons associated together and 
acting under a particular name as one individual. 
The corporation is regarded as having an existence 
separate and distinct from the stockholders or incor- 
porators; for while the incorporators may own the 
stock in the corporation, the corporation itself owns 
the property held in its name. Within recent years 
corporations have been found to be the most popular 
form, and in fact the almost universal means of unit- 
ing great fortunes in any enterprise. 

470. Differ From Partnerships. — There is a great dif- 
ference between a corporation and a partnership. In 
a partnership each partner is a general agent for the 
firm ; each assumes a liability for all debts of the con- 
cern; no authority from the state is required, nor is 
any charter needed to form the same; and the death, 
withdrawal, or insanity of any member of the firm 
dissolves the partnership. 

In case of a corporation it is necessary to have the 
authority of the state in the form of a charter before 

18 



274 CORPORATIONS 

the organization can be completed. The stockholders 
select one or more persons who have exclusive control 
of the business, and the stockholders themselves have 
nothing to do with the management of the concern. 
Should one or more of the stockholders die, become 
insane, or sell out his interest, the corporation would 
not be affected, and in case the corporation fails, the 
stockholder's liability is usually limited to an amount 
equal to the par value of his stock. 

471. Kinds of Corporations. — Corporations may be 
divided into three classes, and further subdivided, as 
follows : 

1. Sole 

2. Quasi f 1. Religious 

3. Aggregate < ( 1. Eleemosynary 

I 2. Lay \ ( 1. Public 

I 2. Civil \ 

(. 2. Private 

472. Corporation Sole. — As the name indicates, a 
corporation of this class consists of a single individual 
and his successors. Corporations of this kind are 
rarely known in the United States, as they are adapted 
only to cases where all the functions of an institution 
are combined in one person, as for example the king or 
queen or absolute ruler of a country. In such cases 
all real estate possessed by the ruler belonging to the 
office would pass to his successor; but the same right 
would not extend to personal property. In truth, but 



CORPORATIONS 275 

few points in corporation law are applicable to sole 
corporations. 

By special act of the legislature in Illinois, bishops 
in certain religious organizations were made corpora- 
tions sole, for the purpose of holding title to real es- 
tate belonging to the church. 

473. Quasi-Corporations. — A quasi-corporation 
(qua'-si) is one which does not possess a charter, but 
which is allowed to exercise the functions of a corpo- 
ration to a limited extent, usually for the purpose of 
holding and transmitting public property. Among 
the bodies most frequently regarded as belonging to 
this class may be mentioned county commissioners 
and officers of school districts. 

474. Aggregate Corporations. — This class of corpo- 
rations constitutes the only kind in which the student 
of Commercial Law is particularly interested, and the 
definition given at the opening of this chapter applies 
especially to aggregate corporations. 

As its name implies, it consists of a number of nat- 
ural persons associated together and acting under a 
particular name as one individual. Aggregate cor- 
porations are divisible into two classes : 

1. Religious or Ecclesiastical Corporations. 

2. Lay Corporations. 

475. Religious Corporations. — These are formed for 



276 CORPORATIONS 

the advancement of religious work, and consist 
principally of church societies. The statutes of most 
states provide for the organization and regulation of 
these corporations. They do not usually issue stock, 
and any property they may acquire is generally held 
by a board of trustees or directors. 

476. Lay Corporations. — This has reference to cor- 
porations not distinctly religious or ecclesiastical in 
character. Lay corporations are divided into two 
classes, as follows: 

1. Eleemosynary Corporations. 

2. Civil Corporations. 

477. Eleemosynary Corporations. — An eleemosynary 
(el-e-mos'-i-na-ri) corporation is one organized for the 
distribution of alms, or the carrying out of any work 
of charity according to the instructions of the don- 
ors. Among the most common forms of this class 
may be mentioned : 

Hospitals for the poor. 

Colleges and academies supported by donations. 

Homes for the friendless, etc. 

478. Civil Corporations. — Civil corporations are 
formed for the temporal benefit of their members. 
Examples of same are banks, manufacturing compa- 
nies, cities, towns, etc., and they are divided into two 
classes : 



CORPORATIONS 277 

1. Public Corporations. 
2. Private Corporations. 

479. Public Corporations. — These are corporations 
created by the government for the welfare of its citi- 
zens. To this class belong counties, cities, towns, 
school districts, etc. They are invested with certain 
legislative powers for local purposes ; but such powers 
are subject to the control of the legislature of the 
state. 

480. Private Corporations. — Any corporation found- 
ed by private enterprise is regarded as a private cor- 
poration, without regard to its object. Most corpora- 
tions of this class are organized for the purpose of 
pecuniary benefit, such as railroads, telephone com- 
panies, banks, etc., but a hospital for the poor, or a 
home for the friendless, would also be a private cor- 
poration if founded by a private benefactor. 

481. Quasi=public Corporations. — Eailroads, tele- 
graph, and canal companies are sometimes called 
quasi-public; that is, they have something of the na- 
ture of a public corporation, yet they are, in fact, only 
private corporations, notwithstanding they have del- 
egated to them from the state the right of eminent do- 
main and owe certain peculiar duties to the public at 
large. 

482. Hew Corporations are Formed. — To create a 



278 CORPORATIONS 

corporation requires the act of a sovereign power, and 
in this country they are formed by the legislature of 
the state or United States. They may be created in 
three ways : 

1. By prescription, 

2. By special act of charter. 

3. By general law. 

483. By Prescription. — A corporation created by 
prescription is one that has been in existence so long 
that the courts presume a grant of power was 
given it, although by the accidents of time the docu- 
ment has been lost. It has been held that by exercis- 
ing the functions of a corporation for thirty years a 
corporation is given a right by prescription. 

484. By Special Act or Charter. — In this country a 
special charter can be obtained only from the legisla- 
ture, and a regular bill must be drafted embodying 
the special privileges, rights, and powers desired for 
the proposed corporation. When this bill is passed 
and becomes a law, it will be regarded in the light of a 
contract between the state and the corporation so or- 
ganized. 

Many states are now prohibited by law from creat- 
ing corporations in this way, for the reason that de- 
signing persons, by the use of undue influence and the 
expenditure of large sums of money, are sometimes 



CORPORATIONS 279 

able to secure from the legislature valuable conces- 
sions for their corporations to the detriment of the 
public in general. 

485. By General Law. — Nearly all the states now 
have what is called a general incorporation act, and 
by complying with the terms of same, corporations 
may be organized at any time without waiting for a 
meeting of the legislature. The object of this general 
act is to facilitate the organization of corporations 
and to secure for them uniformity and equality of 
rights, as well as to prevent the legislature from grant- 
ing special franchises to certain corporations to the 
detriment of the public. 

National banks are organized under a general law 
passed by Congress, and a discussion at some length 
will be found relative to this matter under the chap- 
ter on Banks and Banking. 

486. Formation of Corporations. — In forming a cor- 
poration under the general incorporation act, the ad- 
vice of a reliable and competent lawyer should be ob- 
tained and strict adherence should be given to the 
local state law. The following outline of suggestions 
will indicate the general plan. The persons associat- 
ing themselves together sign and acknowledge before 
a notary public, or other competent official, articles of 
association setting forth in a brief but specific manner 



280 CORPORATIONS 

such facts pertaining to the proposed corporation as 
are required by law. 

These facts usually embrace the following items : 

1. Name of corporation. 

2. Object for which same is formed. 

3. Place where the business is to be done. 

4. Length of time it is to exist. 

5. Amount of capital stock, if any. 

6. Amount subscribed and names of subscribers. 

7. The number of shares into which stock is to be 
divided. 

8. The per cent of capital stock to be paid in. 

487. Corporate Record. — The articles of association 
of any corporation are usually recorded with the 
county clerk in the county where such a corporation 
is organized, and a duplicate copy of same is filed with 
the secretary of state. These articles, when properly 
recorded, become the evidence of the existence of the 
corporation named therein. Great care should be 
taken to see that a complete record is kept of the first 
meetings of the corporation, and that all requirements 
of the law incident to the organization are carefully 
complied with and noted. 

488. Charter. — The charter of a corporation organ- 
ized under the general law consists simply of the 
articles of association, together with the general law 



CORPORATIONS 281 

itself, which defines the powers, duties, etc., of such 
corporations. 

489. Not Liable for Acts of Promoters. — No corpo- 
ration can be held responsible for the acts, contracts, 
or promises of its promoters, provided such contracts 
or promises were made prior to its organization. A 
corporation can not become a party to any contract or 
agreement before it is itself in existence, and even 
then it can only be bound by its duly authorized of- 
ficers. Therefore, any one doing business with the 
promoters of a corporation should look to such organ- 
izers, personally, for the fulfilment of their promises. 

490. Corporators. — A corporator is one who signs 
the articles of association. The number of corpora- 
tors is designated in the general law under which the 
company is organized, and usually consists of from 
three to seven persons, although there may be any 
number of stockholders. Being the organizers the cor- 
porators generally decide many of the details, such as 
a name, amount of capital stock, place of business, 
etc. 

491. Capital Stock. — The capital stock of a corpora- 
tion is fixed by the articles of association or charter, 
which amount is subscribed and is to be paid in by the 
shareholders. The capital stock, therefore, consti- 
tutes the sole resource of the corporation on com- 



282 CORPORATIONS 

mencing business, and, should gains or losses follow, 
they will not increase or diminish the capital stock, 
as it is a fixed quantity, and can only be changed by 
amending the charter. Profits or losses may cause the 
value of the capital stock to fluctuate, so that it may 
be worth at one time much more than its face value, 
and again be worth much less. But this will not 
change the fixed amount, which represents the capital 
stock. 

492. Subscribers. — A subscriber is one who signs 
the subscription book, agreeing to take a certain num- 
ber of shares in the corporation being organized. This 
subscription is, of course, a binding contract in case 
the full capital stock is subscribed. It has been held 
in some states that an oral contract for shares can not 
be enforced, but many courts hold to the contrary. 
After the organization is complete, and the shares 
have been issued, the subscriber is then called a share- 
holder or stockholder. 

493. Payment for Shares. — Each subscriber is sup- 
posed to pay the amount of his subscription in cash, 
but if not contrary to the charter it may be paid in 
any kind of property the company has a right to pur- 
chase. For example, the payment for stock in an irri- 
gation company might be made in lumber, machinery, 
labor, etc., if satisfactory to all parties. 



CORPORATIONS 



283 



494. Watered Stock. — When stock is issued with- 
out the payment of money or value of any kind, it is 
said to be watered stock. This apparently increases 
the capital stock, but in reality adds nothing to the 
resources of the company. It makes an obligation on 
which the corporation is expected to pay dividends, 
but contributes nothing whatever towards increasing 
the earning power of such corporation. 



No. 71. — Form of Stock Certificate 




495. Issue of Shares.— A stockholder who has fully 
paid up his subscription is entitled to a stock certifi- 
cate, which specifies the number of shares of the cap- 
ital stock he owns. Stock of this kind is regarded as 



284: CORPORATIONS 






personal property, even though the corporation itself 
owns nothing but real estate. 

496. Sale of Shares. — The owner of stock in any 
corporation may sell or dispose of his shares with per- 
fect freedom, and as soon as the sale is completed the 
seller loses all his rights as a stockholder. He no 
longer has a voice in the management of the company, 
and can not participate in the profits. He is also re- 
lieved of any further responsibility, and in case of 
failure of the company he would not be liable for any 
further assessments. 

The purchaser of the stock succeeds to all the sell- 
er's rights and is entitled to vote. He is also liable 
for assessments, and will receive dividends if any are 
paid. 

497. How to Assign Stock. — When stock certificates 
are sold, the following form of assignment may be 
used: 

For value received I hereby sell, assign, and transfer unto 
Oscar Berroth all the shares of stock within mentioned, and ap- 
point Geo. Bagley as my true and lawful attorney to make the 
necessary transfer on the books of the company. 

Witness my hand this 15th day of November, 1902. 

Fred King. 

This assignment should be written on the back of 
the certificate, and a blank space may be left for the 
names of the purchaser and attorney. The same cer- 
tificate may then be sold again by merely delivering it 



CORPORATIONS 285 

to the purchaser, and this process may be repeated 
until some one buys the stock who wishes to have the 
same registered. This he may do by simply filling in 
his own name as purchaser and any name he may 
choose as his attorney. 

498. Register Transfers. — Most corporations keep an 
accurate record of all their shareholders, and require 
each purchaser of stock to have the same recorded on 
the books of the corporation before he is allowed to 
exercise any of the rights of a shareholder. As be- 
tween the buyer and the seller of the stock, the trans- 
fer of title is complete without having the same 
recorded. 

499. Cancel Old and Issue New Certificates. — When 
the purchaser of stock presents his certificate for rec- 
ord, the corporation at once takes up and cancels the 
same, and issues to him a new certificate in his own 
name. In all cases the corporation has a right to de- 
mand the surrender of the old certificate before issu- 
ing a new one. 

500. Importance of Recording. — Most corporations 
do not recognize a transfer of stock until it has been 
recorded on their own books, and when dividends are 
declared they are paid to the individual in whose 
name the stock is recorded, even though the certifi- 
cate may have been assigned by him before the divi- 



286 CORPORATIONS 

dend was declared. In case the shares are not reg- 
istered, the assignor, and not the assignee, is liable 
for assessment. Assessments paid nnder such condi- 
tions, however, could be recovered from the assignee. 

501. Unpaid Stock Subscriptons. — Those who sub- 
scribe to the capital stock of a corporation are legally 
bound to pay the amount of their subscription when 
it is called for. But when the corporation is threat- 
ened with insolvency, the shareholders sometimes try 
to avoid their responsibility and evade further pay- 
ment. This is usually attempted in one of two ways. 

1. By cancellation of the subscription with the con- 
sent of the corporation. 

2. By the transfer of shares. 

If fraudulent intent can be shown, a court of equity 
will set aside such transactions. 

Shares may be assigned before they are fully paid 
up, if done in good faith, and the assignee will 
become liable for the unpaid balance. But when 
such a sale is made just prior to the failure of the 
corporation, and made to a person known to be in- 
solvent and irresponsible, the transaction bears strong 
indication of fraud. 

502. Dividends.— A dividend is the net profit of the 
corporation, which has been set aside to be paid to the 
stockholders. If the business is profitable, dividends 



CORPORATIONS 287 

are usually paid on the stock every six months; but 
some corporations pay them every three months ; and 
there are others which, like some individuals, make 
no profits, and therefore pay no dividends. 

503. Discretionary With the Directors. — The direct- 
ors of a corporation usually have the power to de- 
termine when a dividend shall be declared. Some- 
times they decide to pay all the profits out to the 
shareholders in dividends, and again, it is thought 
best to accumulate a reserve fund for some special 
purpose, or to have in readiness in case of emergency. 
This matter is, as a rule, left entirely with the direct- 
ors, and the courts will not generally compel the 
payment of a dividend so long as the directors are 
acting in good faith. 

504. Preferred and Common Stock. — There are two 
classes of stock, the first being known as preferred 
stock, the second as common stock. Preferred stock, 
as the name indicates, is given the preference, and a 
certain per cent of dividend will be paid on it before 
anything is paid on the common stock. Preferred 
stock is not generally issued unless the corporation 
reaches such a condition of financial embarrassment 
that it must have capital or suspend business. Rather 
than see the company fail, and lose everything, the 
original stockholders are willing that preferred stock 



288 CORPORATIONS 

shall be issued to any one who will invest the needed 
capital. 

505. Powers of a Corporation. — Every corporation 
has certain powers which are clearly defined, and 
among them may be enumerated the following : 

1. To have perpetual succession. 

2. To sue and be sued. 

3. To purchase and convey lands and chattels. 

4. To hold lands as trustees. 

5. To have a common seal. 

6. To make by-laws. 

7. To elect officers. 

506. Perpetual Succession. — As before stated, a cor- 
poration is regarded as having an existence separate 
and apart from the stockholders, and in case any or 
all of them die, their personal representatives suc- 
ceed to all their rights, and the corporation itself is 
not changed. Therefore a corporation is said to have 
perpetual succession. But of course this could not 
be literally true, as there is a limit to everything ex- 
cept infinity; besides, many corporations are char- 
tered for a limited number of years, and are, there- 
fore, dissolved at the expiration of the time named. 

507. To Sue and be Sued. — A corporation may sue 
and be sued in its own name, just the same as a nat- 
ural person, and it is now well settled that they are 



CORPORATIONS 289 

responsible, and may be sued for torts, trespasses, 
conspiracies, etc., committed by their agents or 
officers. 

508. To Purchase and Convey Lands and Chattels. — A 
corporation has the power to purchase and hold any 
property, either personal or real, which is needed in 
carrying out its lawful object as set forth in its 
charter. But it is prohibited from acquiring prop- 
erty for objects which are foreign to its legitimate 
business. In case a corporation does acquire lands 
in excess of its legal authority, and thereby violates 
its charter contract, the state alone can interfere and 
declare a forfeiture in its own favor. 

509. To Hold Lands as Trustees. — It was formerly 
supposed that a corporation could not hold land in 
trust for another, but now every large city has its 
trust companies, whose exclusive business is to act as 
trustees, guardians, executors, administrators, etc., 
and they are usually able to offer better service at 
a more reasonable fee than can be furnished by 
individuals. 

510. To Have a Common Seal. — Corporations are re- 
quired to use a common seal on all the more solemn 
forms of contracts, such as conveyances of real estate, 
etc., but on the simple contracts, such as checks, notes, 
drafts, etc., a seal is not required. 

19 



290 CORPORATIONS 

511. To Make By-laws. — The by-laws of a corpora- 
tion has reference to the rules which govern the in- 
ternal management of the company. These rules may 
be made by the stockholders or the power of formulat- 
ing the same may be given to the board of trustees, 
but in either case the by-laws must not conflict with 
the charter or the laws of the land. 

512. To Elect Officers. — All the business of a cor- 
poration is done through its officers, and not through 
its stockholders. Therefore the right to choose its 
officers is one of the necessary conditions of the com- 
pany's existence. This is usually done at the an- 
nual meeting of the stockholders. 

513. Stockholders' Rights. — The stockholders, being 
the owners of the corporation, of course have a right 
to dictate how the business is to be conducted, so long- 
as their ideas conform to their charter or articles of 
association ; but the details of the management are al- 
ways placed in the hands of a board of directors. At 
a meeting of the stockholders, held for the election of 
this board and the transaction of any other business, 
each person has one vote for each share of stock he 
owns. Therefore, if any person owns one share more 
than half the stock, he can control the election. 

Aside from having a voice and a vote at the annual 
meeting, the shareholder has nothing whatever to do 



CORPORATIONS 291 

with the management of the business, this being en- 
tirely in the hands of the board of directors. If a 
stockholder can not be present at these meetings per- 
sonally, he may delegate his right to vote to some 
other person, who will act as his proxy. 

514. Cumulative Voting. — A number of states pro- 
vide for what is known as cumulative voting. This 
permits a shareholder to cast a number of votes for 
one director, equal to the number of his shares multi- 
plied by the number of directors to be voted for. If 
you own ten shares, and eight directors are to be 
elected, you may give ten votes for each of the eight, 
or you may give the entire eighty votes to one candi- 
date. The object of this law is to make it possible 
for the small shareholders to unite and elect one or 
more members of the board. Under the regular 
method, parties holding a majority of the stock can 
unite and elect every member of the board. 

515. Name of Corporation. — Very little restriction 
is placed on the selection of a corporate name, but 
after the name is adopted, it can not be changed ex- 
cept by consent of the state. The laws of some states 
require that the name selected shall begin with "The," 
and end with "Company." Example. — "The J. P. Gar- 
rison Company." If the corporation was known as 
"J. P. Garrison," the public could not tell when the 



292 CORPORATIONS 

name meant J. P. Garrison individually, and when it 
meant the corporation. 

516. Must Not Exceed its Authority When the state 

charters a corporation or allows it to organize under 
the general law, it is with the provision that such cor- 
poration is created for a distinct and clearly defined 
purpose. No corporation, therefore, has a right to 
make any contract or to do any act which is not 
authorized either expressly or by implication in its 
charter. Any stockholder may bring suit to restrain 
the officers of a corporation from engaging in trans- 
actions which are clearly beyond its chartered pow- 
ers; or the state may bring an action to revoke its 
charter altogether. 

517. Ultra Vires. — Any act or contract of a corpora- 
tion which oversteps the bounds of its chartered 
rights, is said to be ultra vires ( ul-tra vi'-rez ) , that is, 
beyond the lawful scope or power of the corporation 
to perform under any circumstances. To illustrate: 
a banking corporation would have no right to enter 
into the life insurance business, and should it do so, 
the transaction would be ultra vires. The fact that 
the board of directors authorized the cashier to issue 
policies would be of no effect, for any additional au- 
thority can come only from the state. 

All persons having dealings with the corporation 



CORPORATIONS 293 

are bound to take notice of its powers, for its charter 
or articles of incorporation are matters of public rec- 
ord or law, and therefore open to the inspection of 
everybody. 

518. Foreign Corporations. — A corporation, being 
an artificial person, is created for a special work 
and endowed with only such powers and rights as are 
necessary to accomplish its purpose. A corporation 
is, therefore, not a citizen in its fullest sense, and no 
state in creating a corporation can confer upon it the 
right to act within the jurisdiction of any other state. 
Therefore, if a corporation wishes to maintain an of- 
fice and do business outside of its ow T n state, it must 
conform to the laws of each state in which it wishes 
to operate. Most all the states have adopted certain 
laws regulating the acts of foreign corporations. They 
are generally required to file with the secretary of 
state a copy of their articles of incorporation, make 
certain sworn statements as to their business condi- 
tion, and pay a specified sum into the state treasury 
as a license for the privilege of doing business in the 
state. 

519. Corporate Trusts and Combines. — A trust, as it 
is usually understood, means a combination among 
corporations engaged in a similar business, so as to 
bring various concerns under one management and 



294 CORPORATIONS 

thereby control the output, the price of raw material, 
and the price of the finished product. Such combina- 
tions have been repeatedly declared illegal upon the 
grounds of public policy, as being in restraint of trade 
and also as being ultra vires. 

520. Executing Corporate Contracts. — The contracts 
of a corporation should be drawn in such a manner 
that the name of the corporation will appear in the 
body of the contract, and not the name of the officer 
who is to sign the same. In filling up an ordinary 
blank note to be given by The St. Louis Commission 
Company it should not read "I promise to pay/' or 
"We promise to pay," but "The St. Louis Commission 
Company promises to pay," The signature to a docu- 
ment should always consist of the name of the cor- 
poration, followed with the word "by," and the sig- 
nature of the officer or the agent. Example. — "The 
St. Louis Commission Company, By D. A. Trivel- 
piece, Secretary." 

521. Liability of Stockholders.— The liability of a 
stockholder in a corporation is determined wholly by 
the statutory provisions under which the corporation 
is formed. In most states the stockholders are liable 
only for the amount of stock owned by them. To il- 
lustrate : if Mr. A owns $1,000 stock in a corporation, 
which amount has been fully paid in, he can not be re- 



CORPORATIONS 295 

quired to pay anything more in case the company 
fails in business, although he may lose the $1,000 he 
has already invested. If, however, he has subscribed 
$1,000 and paid in only $500 of same, he would, in 
case of the failure of the company, be liable for the 
payment of the other $500 if needed to meet the in- 
debtedness. It is this feature of immunity from per- 
sonal liability which makes corporations an attractive 
form of investment. 

This exemption from liability is usually conditioned 
upon the performance of certain acts, required by the 
statutes, such as the publication annually of correct 
reports of the financial condition of the concern. A 
failure to comply strictly with the law in this regard 
may subject each stockholder to liability for all the 
debts of the concern. In many states stockholders are 
held liable for twice the amount of their stock, and 
this is especially true of banking corporations. 

522. Capital Stock a Trust Fund. — The doctrine is 
sometimes advanced that the capital stock of a cor- 
poration is a trust fund for the payment of the com- 
pany's debts. It is the company's sole resource on com- 
mencing business, and it is held out to the public as an 
evidence of the ability of the concern to meet its obli- 
gations. It is, in fact, the basis on which it builds its 



296 CORPORATIONS 

credit and works itself into the confidence of the 
public. 

Creditors therefore have a right to demand that the 
full amount of the capital subscribed shall be paid in, 
provided it is necessary to meet the obligations, and 
also that the capital remain unimpaired, except from 
the natural losses incident to the legitimate prosecu- 
tion of the business. Should any officer or stock- 
holder, therefore, participate in the illegal diversion, 
withdrawal, or fraudulent use of the capital stock, 
such wrong-doers are liable to any creditors who have 
been injured thereby. 

523. Dissolution. — A corporation is dissolved when- 
ever for any reason it surrenders or loses its charter. 
Should the officers or stockholders continue to act 
after the dissolution, they can bind only themselves 
in an obligation or contract, and in most cases would 
be regarded in law as partners. 

The dissolution of a corporation may take place 
in any of the following ways : 

1. By expiration of charter. 

2. By the surrender of its charter with the consent 
of the state. 

3. By the forfeiture of its franchise. 



JOINT STOCK COMPANIES 297 

JOINT STOCK COMPANIES 

524. Explanation. — Joint stock companies should 
not be confused with corporations, for there is a great 
difference between them. In fact, a joint stock com- 
pany is more like a partnership, but it really occupies 
a middle ground between a corporation and a partner- 
ship. They are a very popular form of organization 
in England, and for many years were regarded favor- 
ably in this country, but since all the states now have 
general laws under which corporations may be formed 
with such ease, and at a very slight expense, the joint 
stock company is seldom met with except in some of 
the eastern states. 

525. How Organized. — The organization of a joint 
stock company is effected in practically the same man- 
ner as a partnership is formed, with the exception 
that certain members of the company are selected as 
officers and have charge of the details of management, 
the same as officers of a corporation. Those who enter 
into the company draw up and sign articles of agree- 
ment, which become the charter and by-laws of the 
concern. In it are specified the powers, duties, etc., 
of the members, and their liability is regulated by the 
statutes of the state. 

526. Articles of Association. — The articles of asso- 
ciation contain all the details regarding the manage- 



298 JOINT STOCK COMPANIES 

ment of the company, and among others the follow- 
ing points are taken up : 

1. Name of company. 

2. Nature and place of business. 

3. Amount of capital stock. 

4. Number and par value of shares. 

5. Officers and duties of same, etc. 

6. Time of commencing business. 

7. Manner of forming the company, etc. 

527. Liability of Stockholders. — In most states, the 
stockholders- are held to the same responsibility as 
though they were partners, but in some states they 
are allowed to limit their liability the same as in a 
limited partnership. (See chapter on Partnership.) 
But in that case the word "limited" must always ap- 
pear as a part of the company's name. 

528. Comparison with Partnerships and Corporations. 
It will be seen that a joint stock company is very 
much the same as a partnership in the liability of 
its members, but in the organization, manner of do- 
ing business, having the powers of succession, elec- 
tion of officers, etc., it resembles the corporation very 
closelv. 



JOINT STOCK COMPANIES 299 

CORPORATIONS 

REVIEW QUESTIONS 

Define corporation. 

How does a corporation differ from a partnership? 
Define a corporation sole and give example. 
Define aggregate corporation and give example. 
Define a quasi-corporation and give example. 
Define religious corporation and give example. 
Define a lay corporation and give example. 
Define eleemosynary corporation and give example. 
Define civil corporation and give example. 
Define public corporation and give example. 
Define private corporation and give example. 
Define quasi-public corporation and give example. 
How are corporations formed? 
What is a charter? 
What is the capital stock? . 
What is the watered stock? 
What is a certificate of stock? 
Can stock certificates be sold? 
Is it necessary to have a transfer of stock reg- 
istered? 

What are dividends? 
Define preferred stock; 
Define common stock. 



300 JOINT STOCK COMPANIES 

Who elects the directors in a corporation? 
Who elects the officers? 
What is meant by ultra vires? 
Define a foreign corporation. 
What is the liability of a stockholder? 
How may a corporation be dissolved? 
What is a joint stock company? 
How is it organized? 

How does it differ from corporation and partner- 
ship? 



BAILMENT 301 



CHAPTER XXVI 

BAILMENT 

529. Explanatory. — The contract of bailment arises 
when one individual delivers to another any personal 
property without transferring the ownership; such a 
delivery always presumes an agreement, either ex- 
pressed or implied, that the thing delivered is to be 
accounted for or returned ; as for example the loan of 
a book, the hire of a horse and carriage, the renting 
of a typewriter, etc. 

530. Parties. — The word "bail" in law means "to 
deliver," therefore the one who delivers the thing to 
another without conveying ownership is called the 
"bailor" and the party who receives the thing is called 
the "bailee." The delivery itself is a "bailment." 

Bailment includes all of the ordinary contracts 
growing out of hiring, keeping, lending, carrying, and 
working upon the goods of another, whether with or 
without reward, and all delivering of them in pledge 
or pawn as security for a debt. 

531. Test of Bailm2nt. — It should be remembered 
that to constitute a bailment, the property must be 
delivered with the agreement either expressed or im- 
plied that the identical thing deliverd is to be re- 



302 BAILMENT 

turned. In short, it is next to impossible for one to 
have the personal property of another in his posses- 
sion without becoming a bailee. 

If this be not the case, it will usually be termed a 
sale or a gift. It matters not that the goods are to 
be returned in an entirely different form, such as the 
delivery of cloth to a tailor to be made into a suit, 
or the delivery of gold to a goldsmith to be made into 
a watch case; it would still come under contract of 
bailment. 

If, however, the conditions of the delivery are such 
that the identical property is not to be returned, but 
another thing of like kind and quality, then the trans- 
action, instead of a bailment, becomes a purchase to 
be repaid in kind. 

532. Exception. — To the above rule there is one ap- 
parent exception in most states, and that is in the case 
of grain delivered to an elevator or warehouse. The 
grain of the various depositors, when it is of the 
same grade, is usually mixed together in one bin, so 
that the identical property can not be returned to each 
depositor, but each becomes a part owner of the whole 
according to the amount he has put in. 

533. Kinds of Bailment. — Bailment is, as a rule, di- 
vided into the following classes : 



BAILMENT 303 

1. Deposit. 

2. Mandate. 

3. Gratuitous loan. 

4. Pledge or pawn. 

5. Bailment of hire. 

534. Degree of Care. —Every bailee on receiving 
goods of another into his possession becomes responsi- 
ble for a certain degree of care, and it is a very im- 
portant matter for him to know just what degree of 
diligence the law will expect him to exercise, that he 
may be held harmless in case of loss or destruction of 
the property. Courts have recognized and defined 
three degrees of care, viz. : 

1. Slight care, or that degree of diligence which 
a man, though somewhat careless, would exercise in 
his own affairs. 

2. Ordinary care, or that degree of diligence which 
every prudent man would use in his own business. 

3. Great care, or such care as a very exact and 
thoughtful man would use in dealing with his own 
property. 

It will be seen that the degree of diligence required 
by the law measures inversely the degree of negligence 
for which the bailee will be held accountable. Thus, 
the absence of slight care will be regarded as gross 
negligence, the absence of ordinary care will be re- 



304 BAILMENT — DEPOSIT 

garded as ordinary negligence, the absence of great 
care will be considered as slight negligence. 

535. General Rule of Care. — In cases where the con- 
tract of bailment is entered into solely for the benefit 
of the bailee, he must take great care and will be liable 
for even slight negligence. For example, I loan you 
my watch, which is solely for your benefit. But where 
the contract is solely in the interest of the bailor, only 
slight care need be taken, and the bailee will not be 
considered responsible except for gross negligence. 
Example. — Mr. A stores his household goods in your 
barn for safe-keeping, the transaction being of course 
solely for his benefit. If both bailee and bailor are to 
be benefited, ordinary care will be required and or- 
dinary negligence will make bailee liable. 

DEPOSIT 

536. Definition. — A deposit consists of the delivery 
of goods or chattels to another to be kept without re- 
ward and returned or accounted for according to the 
agreement. 

A distinction should be noted between a deposit 
as here described and the ordinary deposit of money in 
a bank. Money deposited in a bank subject to check is 
simply a case of debit and credit, usually called a gen- 
eral deposit, as there is no intention of having the 
identical money returned. 



BAILMENT — DEPOSIT 305 

In case of a deposit as here described, the same 
article deposited must be returned, and the keeping 
or storing of same must be done without reward. 

If money is left in a bank for safe-keeping with the 
distinct understanding that the identical money is to 
be returned, it is then a deposit — usually called a spe- 
cial deposit. 

537. Liability. — The keeping of the thing deposited 
must be done wholly without recompense, otherwise 
it would come under another class of bailment. If 
nothing is paid for the keeping of the article it is 
clearly done for the sole benefit of the bailor or owner, 
and the bailee is liable only for gross negligence. 

Just what constitutes gross negligence depends 
upon the nature of the goods, the custom of the place, 
and all the peculiar circumstances surrounding the 
transaction. 

538. Right to Use. — The bailee generally has no right 
to use the property deposited; unless it is agreed upon 
between the parties, for he is supposed to return the 
property in as good condition as it was when received 
by him. 

There are many cases,' however, where a moderate 
use of the thing would be implied. For example, a 
horse deposited would be benefited by the exercise 
arising from moderate use; a milk cow deposited 

20 



306 BAILMENT DEPOSIT 

would give the bailee the right to use the milk; and 
such articles as books and pictures would not be in- 
jured by proper use. 

539. Duties of Bailee. — The bailee is bound to return 
the thing in as good condition as it was when received 
by him, and must also return ail profits or increase. 
He is not liable for any damage to the thing deposited 
unless he has been grossly negligent, and if the article 
be stolen or destroyed he is not liable if he has used 
ordinary care. 

In returning the thing deposited it is not necessary 
for the bailee to take it to the owner; but it is suf- 
ficient to tender it at his (the bailee's) place of busi- 
ness, and if it is not taken it remains at the owner's 
risk. 

540. Rights of Bailee. — A bailee may terminate the 
contract at any time by giving the bailor reasonable 
notice to remove the goods. If they are not removed 
they may then be put off the premises. 

No one is compelled to take goods on deposit against 
his will, for, like any other contract, it requires the 
element of consent ; but if the goods are received, then 
the bailee can not avoid his responsibility; hence, if 
A finds some personal property which is lost he need 
not take charge of it unless he so desires, but if he 



BAILMENT MANDATE 307 

once takes possession of it he immediately becomes a 
bailee to the owner for the deposit. 

Should the bailee find it necessary to put himself 
to any expense for the preservation of the deposit, 
he is entitled to recover from the owner the amount 
thus expended. 

MANDATE 

541. Definition. — A mandate is the bailment of per- 
sonal property to be carried or worked upon without 
reward. 

In a deposit the chief object is the keeping of the 
thing, while in mandate the keeping is only incidental 
to the principal object, which is the service to be per- 
formed. 

Every case where any person undertakes to carry 
goods for another or to perform some act relating to 
same without recompense is a mandate. 

542. Parties. — The owner, or the person delivering 
the goods is called the mandator (man-da' -tor) and 
the one receiving them is called the mandatary (man'- 
da-ta-ri). 

543. Degree of Diligence. — The rule is the same as in 
case of a deposit, the mandatary being required to 
exercise only a slight degree of diligence, inasmuch as 
the bailment is entirely for the benefit of the manda- 
tor. 



308 BAILMENT — MANDATE 

544. Consideration. — The service is performed 
gratuitously in case of a mandate, but it should not be 
presumed that there is no consideration, as the deliv- 
ery of the goods and undertaking to perform the trust 
is sufficient consideration to support the contract. 

545. Liability ol Bailee. — It is a generally accepted 
rule that the bailee is liable for misfeasance (mis-fe'- 
zans), but not for nonfeasance (non-fe'-zans),that is, 
if the bailee enters upon the performance of the trust, 
even though it be without reward, he must exercise 
due diligence and skill, but if he does not enter upon 
the performance of the task he can not be held liable. 
To illustrate: A and B are farmers; A has fifty bush- 
els of wheat in an open bin; B promises he will call 
next morning and haul the same to market for A with- 
out compensation. He undertakes it, but by his gross 
carelessness the wagon is upset and all the grain lost. 
B is responsible for misfeasance. On the other hand, 
if B had wholly ignored his promise and not under- 
taken to haul the wheat, he could not have been held 
liable at law for damages, even if a rain had fallen the 
next day and the wheat had been spoiled. This would 
have been a case of nonfeasance. 

546. Skill Required. — The degree of skill required of 
one who undertakes to perform a gratuitous task upon 
goods belonging to another depends upon the char- 



BAILMENT — GRATUITOUS LOAN 309 

acter of the service to be performed and the profession 
or vocation of the bailee. A man who knows nothing 
of horses may let your team run away and break your 
carriage to pieces, and he would not be held to such 
strict accountability as a person who was skilled in 
handling horses ; in other words, a person who under- 
takes the performance of a task is expected to use all 
the skill he possesses. 

GRATUITOUS LOAN 

547. Definition. — Gratuitous loan or a loan for use, 
as it is sometimes called, is the delivering of goods to 
another to be used by him without compensation. 

The word loan is often used in a business sense 
when it has no reference to the bailment law, for the 
loan of money is not bailment. It should be kept in 
mind that bailment includes only loans where the 
identical property loaned is to be returned. 

548. Parties. — The parties to contract or bailment 
in this class are called the lender and the borrower. 

549. Special Features. — In a case of gratuitous loan 
the thing loaned is for the sole and exclusive use of 
the borrower, and there must not be any charge of any 
kind whatever for the use of the article. 

550. Diligence Required. — In contracts of this class, 
the loan being exclusively for the benefit of the bor- 



310 BAILMENT GRATUITOUS LOAN 

rower, it is only reasonable that he should use great 
diligence in the care of same. While the law requires 
this of him, it must not be assumed that he becomes 
an insurer of the safety of the thing borrowed, for 
such is »not the case. 

551. Use of the Thing Borrowed. — It is well estab- 
lished that in cases of gratuitous loan the thing loaned 
can not be used for any purpose other than that for 
which it was borrowed. C borrowed a horse to ride 
to a certain place. He afterwards changed his mind 
and went to another place, not so far, but in the op- 
posite direction. The horse was injured without any 
fault of the borrower, but the court held him respon- 
sible on the ground that he did not put the horse to 
the use for which it was borrowed. 

If a thing is borrowed for a definite length of time, 
the borrower has no right to use it after the expira- 
tion of that time. 

552. Liability of Borrower. — It is a general rule that 
the borrower is exempt from all loss occasioned by in- 
evitable accident or by causes that could not be fore- 
seen or guarded against. He is, however, liable for 
all expenses in keeping or repairing the thing bor- 
rowed, provided his use of the thing made the repairs 
necessary. A borrowed a valuable vislin from B, and 
although the doors were carefully locked a thief broke 






BAILMENT — PLEDGE 311 

in and stole the instrument. A was not held liable for 
the loss. 

553. Liability of Lender. — While the lender receives 
no reward for a gratuitous loan, yet he is held liable 
for any damages growing out of the unsafe condition 
of the thing loaned, provided he knew of it, and did 
not make it known to the borrower. A loaned B a 
carriage horse, knowing him to be a vicious animal, 
but the fact was not mentioned to B. B, supposing 
the horse to be gentle, hitched him to his carriage, and 
a runaway followed, the carriage being broken to 
pieces. A was held responsible. 

The borrower has a perfect right to the enjoyment 
and possession of the thing during the time for which 
it was borrowed, and the lender can not interfere or 
claim possession during that period. 

PLEDGE 

554. Definition. — A pledge or pawn consists of a 
delivery of personal property to be held as security for 
the payment of a debt. The contract is made in the 
interest and for the benefit of both parties. The par- 
ties are called the pledgor (plej'-or) and the pledgee 
(ple-je') or the pawnor and pmonee. The word 
"pawn," however, is seldom used except in connection 
with a certain class of pledgees called "pawn- 
brokers." 



312 BAILMENT — PLEDGE 

555. Pledge Unlike riortgage. — In case of a pledge 
the pledgee always takes possession of the property 
and holds it as security, but this is not customary 
when a chattel mortgage is given, for the mortgage 
gives the holder a lien or claim against the property 
mortgaged, and if the debt is not paid the property 
may be sold according to law to meet the obligation. 

556. Collateral Security. — When the thing pledged 
for the payment of a debt consists of notes, bills, 
bonds, certificates of stock, etc., it is usually called 
collateral security (kol-lat'-e-ral). The transfer of 
this collateral security is made by endorsement or as- 
signment just the same as if it were a bona -fide sale. 
This is a favorite class of security with banks and 
bankers when short time loans are desired. 

557. Delivery in Pledge. — It is absolutely necessary 
that the pledgee should take possession of the pledged 
property, for a simple agreement that certain prop- 
erty shall stand as a pledge for a certain debt is not 
sufficient. An agreement made to pledge certain 
property at a certain future date is, however, valid 
and can be either enforced or made the basis for a 
damage suit. 

558. riust Retain Possession. — The pledgee must re- 
tain possession of the property pledged if he would 
preserve his rights to same; yet if it be taken from 






BAILMENT — PLEDGE 313 

him by force or obtained by fraud he has a perfect 
right to recover it. He may also return it to the 
owner for some particular purpose, such as repairs, 
without losing his right of lien. 

559. The Debt. — The thing pledged becomes secur- 
ity not only for the debt itself but for the interest on 
same and all legitimate expenses in preserving the 
thing pledged, and also the necessary cost of selling 
the same. 

A person may give a pledge for the payment of his 
own debt or for the debt of another. The debt may be 
conditional or absolute ; it may be for value received, 
or may be given to indemnify the pledgor for signing 
a bond or endorsing a note, etc.; but after the thing 
is pledged for the security of a particular debt it can 
not, except by special agreement, be held as a pledge 
for anv other obligation. 

560. No Title. — If the person from whom you re- 
ceive property has no title to it, you will receive none. 
No man can convey to another that which he does 
not himself possess ; therefore a pledgee who receives 
property from one who has no title to it will not be 
able to hold the same if the real owner demands it. 

Stolen goods are often disposed of at pawnshops; 
but if they can be found the owner may take posses- 



314 BAILMENT — PLEDGE 

sion of them regardless of the amount of money the 
pawnbroker may have advanced on same. 

561. Rights to Sell Pledge. — As soon as the debt be- 
comes due the pledgee, after giving reasonable notice, 
may proceed to sell the property to satisfy the obli- 
gation. The pledgee has no right to retain the pledge 
in satisfaction of the debt ; neither should he buy the 
same at his own sale. The sale should be public, and 
due diligence should be used to get the best possible 
price for the property. If the net proceeds of the sale 
do not pay the entire debt, the pledgor may be sued 
for the deficit; but if more than the amount of the 
debt is realized from the sale, the pledgee must ac- 
count for the excess. When the property consists of 
several articles, only sufficient should be sold to sat- 
isfy the claim. 

562. Negotiable Paper an Exception. — The pledgee 
who takes notes, bills, bonds, etc., as collateral secur- 
ity should, by special agreement, secure the power to 
sell same in case the debt is not paid at maturity. 
Otherwise, under the decisions of many states, the 
pledgee will be compelled to retain possession of them 
until they become due, at which time he is expected 
to collect them and apply the proceeds upon the debt. 

In case long time bonds or mortgages are taken as 



BAILMENT — HIRE OF THINGS 315 

collateral security they might not mature until many 
years after the debt falls due. 

BAILMENT OF HIRE 

563. Definition. — The bailment of hire is a contract 
by which, for a compensation, some personal property 
is delivered to another for use or for the purpose of 
having some labor or service performed upon it. 

The subject is usually separated into four divisions, 
as follows : 

1. Hire of things. 

2. Hire of services. 

3. Hire of custody. 

4. Hire of transportation. 

HIRE OF THINGS 

564. Definition. — In this class of bailment personal 
property is hired or rented by one person from an- 
other, as the renting of a piano or the hiring of a horse 
and carriage. The parties to the contract are called 
the hirer and the letter. 

565. Degree of Diligence. — The hirer of an article 
is responsible for ordinary care and must restore the 
thing hired in as good condition as it was when re- 
ceived by him, ordinary wear and tear excepted. If 
the article is damaged or lost by his carelessness or 
by the carelessness of his servants, he is held responsi- 



316 BAILMENT — HIRE OF THINGS 

ble; but if it is lost or damaged without any fault or 
neglect of his, the letter must bear the loss. 

566. Duty of the Letter.— It is the duty of the 
letter to deliver the thing, together with all accoutre- 
ments necessary for its proper use. For example, the 
hire of a horse and carriage would imply that the 
letter would also furnish a suitable laprobe, whip, 
etc. 

The letter can not resume possession of the thing 
during the period for which it was hired, and he must 
not in any way interfere with its proper use by the 
hirer. 

The hirer is required to pay all expenses of keeping 
an animal hired; but the letter must keep the thing 
or animal in proper condition for use. 

567. Use of the Thing. — The thing hired must be 
used for no other purpose than that which is men- 
tioned in the contract, and if the hirer uses it in any 
other manner he will become responsible for any in- 
jury or loss that may occur. The severity with which 
this law was formerly enforced has, however, been 
relaxed somewhat in recent years, and so long as the 
hirer uses the thing hired in a proper and careful 
manner, and substantially follows the agreement, he 
will not, as a rule, be held liable. 

The following case is a good illustration: A hired 



BAILMENT — HIRE OF SERVICES 317 

a horse for a certain journey, but unexpectedly met a 
friend and went out of his way to visit him ; the horse 
stumbled and was injured. It was shown that A was 
careful and prudent in the use of the animal, and the 
court held that he was not liable for the injury. 

HIRE OF SERVICES 

568. Definition. — This kind of bailment consists in 
delivering to another goods upon which some work is 
to be done for a compensation. A carriage is deliv- 
ered to a painter to be varnished ; a clock is delivered 
to the jeweler to be repaired; cloth is delivered to a 
tailor to be made into a suit, etc. 

569. Degree of Skill. — Every workman who holds 
himself out to the world as being capable of doing a 
certain class of work must possess at least ordinary 
skill in same. 

One man may build a fence and another a telescope, 
but each must do his work in a skilful manner, that is, 
he must possess the kind of skill required for his par- 
ticular work. If loss or damage result from lack of 
skill it is no excuse for a workman to say he did the 
best he could, for he is supposed to be competent. 

570. Duties of Workman. — He must do the work him- 
self unless the nature of the work is such that it is 
not considered a personal trust. If you employ an 



318 BAILMENT — HIRE OF CUSTODY 

artist to paint a picture for you, it would be unrea- 
sonable for him to have the work done by some one 
else, as you are paying for his personal skill. On the 
other hand, if you employ a contractor to build a res- 
idence for you, he would not be expected to do all the 
work himself, or even necessarily any part of it, but 
he must see that it is properly done. 

571. Liability for Loss. — If property is delivered to 
a workman for repairs and it is lost or destroyed by 
no fault of his, the owner must bear the loss and also 
pay for the work already done on same. As a rule 
the loss must be sustained by the person who owns 
the goods. 

HIRE OF CUSTODY 

572. Definition. — Hire of custody is a contract 
whereby one person undertakes, for a reward, to give 
care or attention to the goods of another which have 
been left with him for that purpose. Any person may 
enter into a contract of this kind, but those who make 
it their regular business are known by certain names, 
such as agistors, warehousemen, wharfingers, etc. 

573. Agistor (a-gis'-tor). — One who takes in stock 
to pasture is called an agistor. He must use ordinary 
skill, and if an injury occurs on account of his negli- 
gence he is of course liable. An agistor is not com- 
pelled to take ail animals which are brought to him, 



BAILMENT — HIRE OF CUSTODY 319 

but may select only such as he desires. He does not 
have a lien on an animal for its keeping except by spe- 
cial agreement. 

574. Warehouseman. — A warehouseman is one who 
receives goods to be stored in his warehouse for a com- 
pensation. He is not an insurer of the goods, and is 
not responsible for their loss unless he has been neg- 
ligent. 

He has a lien on the goods for his storage charges, 
but for no other debt. 

575. Wharfinger. — A wharfinger (whar'-fin-jer) is 
one who keeps a wharf where goods are received and 
shipped for a consideration. His rights, duties, etc., 
are practically the same as a warehouseman. 

576. Hotel Keeper. — A hotel keeper, or an innkeeper 
as they are usually called in law books, is one who 
makes it his business to furnish lodging and enter- 
tainment to those who are away from home. 

He is compelled to take all who apply to him pro- 
vided he has room for them, unless they are in some 
way and for good reason objectionable. For example, 
he could refuse to take an intoxicated person or one 
having a contagious disease, but should he refuse a 
person without just cause he would be liable to an ac- 
tion for damages. The proprietor of a hotel is usually 
called the landlord. 



320 BAILMENT — HIRE OF CUSTODY 

577. Liability of Landlord.— The liability of a land- 
lord differs so much in the various states that it is 
impossible to give more than a few general rules 
here. 

He is held to a very strict responsibility for the pro- 
tection of the person and property of his guests, and 
is liable for any loss that occurs on account of his 
servants or even his guests, so far as it affects other 
guests. He is not chargeable, however, for losses that 
occur through the guest's own servants or companions. 

Usually the hotel keeper may require the guests to 
leave certain valuables, such as money, jewelry, etc., 
at the office for safe-keeping. 

578. When Liability Begins. — The hotel keeper's lia- 
bility for the baggage of a patron begins as soon as the 
person enters the hotel for the purpose of becoming a 
guest, and ceases only when the guest takes his de- 
parture and his baggage has been delivered to him. 
If servants of the hotel take the baggage to or from the 
depot or cars, the hotel keeper is responsible for it. 

579. Rights of Landlord. — In return for the extra- 
ordinary responsibility imposed upon a landlord he 
is given certain rights, among them being the privi- 
lege of requiring the guests to pay in advance. This 
right is not usually enforced, however, provided the 



BAILMENT — HIRE OF CARRIAGE 321 

guest has baggage. The landlord has a lien on the 
guest's baggage for his bill. 

580. Who is a Guest. — The law makes a distinction 
between a guest and a boarder, and there is a great 
difference between the responsibility of a hotel keeper 
and the keeper of a boarding house. A guest is a per- 
son stopping at a hotel who is away from home, either 
on pleasure or business; while a boarder is one who 
resides in the place. 

A hotel may have both guests and boarders. The 
guests are supposed to be away from home and among 
strangers, with no means of protecting themselves 
against theft or robbery; therefore the landlord's re- 
sponsibility is very great. The boarders are supposed 
to be living at home, and, understanding their sur- 
roundings, they are able to look after their own inter- 
ests and are in little need of protection. 

HIRE OF CARRIAGE AND TRANSPORTATION 

581. Definition. — Hire of carriage or transportation 
is a contract by which one person agrees to carry goods 
or chattels of another for a consideration. There are 
two kinds, viz., Private Carriers and Common or Pub- 
lic Carriers. 

582. Private Carrier. — A private carrier is one who 
carries goods for others on some particular occasion, 



21 



322 BAILMENT — HIRE OF CARRIAGE 

but does not make it his regular business. He is not 
bound to carry goods for all who wish to employ him, 
but may accept only such customers as he desires. He 
is responsible for ordinary diligence and skill, but he 
is not liable if the goods burn, are stolen, or perish on 
account of their own defect, unless he has failed to 
use ordinary care. By special agreement he may of 
course enlarge his responsibility. 

583. Common Carrier. — A common or public car- 
rier is one who makes it his business to carry or trans- 
port goods from place to place for any one who wishes 
to employ him. He may be a carrier of goods or 
passengers or both. Among the common carriers 
may be mentioned railroad, express, and steamboat 
companies, street car companies, expressmen, stages, 
omnibuses, etc. 

584. Public Character of Business. — On account of 
the public nature of his work the common carrier is 
under obligations to accept all goods offered to him 
for transportation, and he is liable to an action in case 
he refuses to take them without good reasons. 

585. What They are Bound to Carry. — Common car- 
riers are bound to accept and transport only such 
goods as they profess to carry, for many carriers have 
not the facilities or equipments to handle all classes 



BAILMENT — HIRE OF CARRIAGE 323 

of chattels. Neither can they be compelled to carry 
goods except by their regular route. 

586. Duties of Carrier. — A common carrier must 
transport goods with reasonable dispatch and in the 
order of time they are received, but a preference may 
usually be given to goods of a perishable nature. The 
carrier must not deviate from his regular route, for 
if he does, and a loss occurs, he will be held responsi- 
ble without regard of what may have caused the loss. 

Carriers must provide suitable equipments for 
transporting all goods they profess to carry, and if 
some goods have special marks to indicate the care 
with which they are to be handled, the carrier must 
take notice of same, as "this side up," "handle with 
care," "glass," etc. 

587. Liability of Carrier. — When you deliver goods 
to a carrier to be transported and he accepts them, a 
definite and positive contract has been entered into. 
He agrees not only to carry them to their destination, 
but he also becomes an absolute insurer of the safety 
of the goods and is liable for their loss unless de- 
stroyed by the act of God or the public enemy. The 
acts of God are such as floods, lightning, cyclone, etc., 
being such causes as can in no way be controlled by 
human efforts. 

Public enemies are those against whom our country 



324 BAILMENT — HIRE OF CARRIAGE 

has declared Avar, but this has no reference to common 
thieves and robbers. 

588. Limit Liability. — The common carrier may 
limit his liability by special contract with the shipper, 
providing such agreement is reasonable and just in the 
eye of the law, and in some states the carrier is al- 
lowed to limit his liability by a notice to that effect, 
which is usually incorporated in the shipping receipt, 
or bill of lading. 

589. May Demand Pay in Advance. — Although the 
law compels common carriers to transport the goods 
of any one who offers them, it does not ask them to 
do business on credit, and they have the right to de- 
mand that the charges be paid in advance. 

590. When Liability Begins and Ends. — The liability 
of a common carrier begins just as soon as the prop- 
erty is delivered at his customary place of receiving 
goods, and his responsibility ends when there remains 
no further duty to be done by the carrier. 

It is customary in most places for the carrier, when 
the goods arrive, to notify the person to whom they 
are addressed, and if they are not taken away within 
a reasonable time the carrier is relieved of his re- 
sponsibility as a carrier and may store them in a ware- 
house, and his responsibility will be reduced to that 
of a warehouseman. 



BAILMENT — CARRIES OF PASSENGERS 325 

591. Delivery. — A common carrier must deliver 
freight according to the address and is responsible for 
delivering to the wrong person. If the consignee is 
unknown to him he will require identification before 
allowing him to take the goods. 

It is a matter of custom as to where delivery should 
be made. In all the larger cities the express com- 
panies make an actual delivery of the goods to the 
house or office named in the address on the package, 
and where this is the custom the companies are bound 
by it. The rule among railroad companies is just the 
reverse, and they consider the goods delivered when 
they are placed in their warehouse and the consignee 
has been notified of their arrival. 

592. The Carrier's Lien. — If the carrying charges 
have not been paid in advance, the carrier has a lien 
on the goods for the same. 

CARRIER OF PASSENGERS 

593. Definition. — A common carrier of passengers 
is one who makes it his regular business to transport 
passengers from one place to another for a considera- 
tion. Such a carrier may also be a carrier of goods, 
but his responsibility is very different in the two 
cases. 

594. Liability of Carrier. — The carrier of passen 



326 BAILMENT — CARRIER OF PASSENGERS 

gers is not an absolute insurer of the safety of his 
patrons, for the reason that a passenger has his free- 
dom to move about, and, being intelligent, he is able 
to avoid or escape from certain dangers. Should he 
therefore fail to exercise an ordinary degree of good 
judgment and on that account meet with an accident, 
he may not be able to .recover damages from the 
carrier. 

It should be remembered that while the carrier is 
not an insurer of the safety of the passengers he is 
held responsible for the slightest negligence in case 
of accident. 

595. Baggage. — The sum paid for a ticket on a rail- 
road not only entitles the purchaser to transportation, 
but also entitles him to take a certain amount of bag- 
gage with him. 

This includes any article of a personal nature re 
quired for the comfort or convenience of the passen- 
ger. Just what would be considered baggage depends 
much upon the nature and object of the journey, and 
the sex, age, and circumstances of the passenger. In 
addition to wearing apparel he might include most 
any article which he intended to make personal use 
of during the journey. 

596. Not Baggage. — Articles of merchandise carried 
either for sale or as samples are not regarded as bag- 






BAILMENT — CARRIER OF PASSENGERS 327 

gage unless the carrier, knowing the nature of same, 
accepts them as such. 

Articles intended as gifts to friends are not bag- 
gage; in fact nothing can be justly regarded as bag- 
gage which is not intended for the personal use of the 
passenger. 



BAILMENT 

REVIEW QUESTIONS 

Define bailment. 

What are the parties to a bailment called? 
Must the identical thing be returned? 
Name the five classes of bailment given in this 
chapter. 

What care must be taken? 

Define a deposit. 

How does it differ from a bank deposit? 

Has the bailee a right to use the thing deposited? 

Name the duties of bailee in case of deposit. 

Define mandate. 

Define gratuitous loan. 

Who has a right to use the thing loaned? 

What degree of diligence is required? 

What is the liability of the borrower? 

What is the liability of the lender? 



328 BAILMENT 

Define a pledge. 

What is collateral security? 

Must the pledgee retain the property in his pos- 
session? 

Is the pledge security for debts other than the one 
agreed upon? 

May stolen goods be pledged? 

Define bailment for hire. 

Define hire of services. 

What degree of skill must be employed by the work- 
man? 

Define hire of custody. 

What is an agistor? 

Who is a warehouseman? 

Who is a wharfinger? 

Who is a hotel keeper? 

How does a hotel differ from a boarding house? 

Who is a guest? 

How does the responsibility of a landlord differ 
from that of a boarding house keeper? 

Define hire of transportation? 

Distinguish between private and public carriers. 

What is a public carrier bound to carry? 

What are some of the duties of common carriers? 

Can he limit liability? 

Must charges be paid in advance? 



BAILMENT 329 

When does his liability begin? 

Who is a common carrier of passengers? 

Is his liability as great as the carrier of freight? 

What is baggage? 



330 FIRE INSURANCE 

CHAPTER XXVII 

FIRE INSURANCE 

597. Definition. —Fire insurance is a contract by 
which the insurance company agrees to indemnify or 
reimburse the person insured for loss or damages oc- 
casioned by fire during a certain specified period. The 
company is called the insurer and the person taking- 
out the policy is called the insured or the assured. 
The contract of insurance is the policy and the price 
paid the company is called the premium. 

598. Popular Idea. — The idea of fire insurance has 
become so popular that it is now almost a universal 
practice, and the person who neglects to protect him- 
self from loss on his property by a suitable policy is 
regarded as lacking ordinary prudence, if indeed he 
is not considered reckless and improvident. There 
are two principal kinds of companies, the Stock Com- 
pany and the Mutual Company. 

599. Stock Companies. — The stock company is a cor- 
poration organized for the purpose of doing a general 
fire insurance business, and the capital consists of 
money paid in by the various stockholders. This kind 
of company makes all its contracts on the basis of a 
certain premium agreed upon in advance, and its 



FIRE INSURANCE 331 

whole capital as well as its receipts is bound for the 
payment of its losses. The stock companies are often 
called the "Old Line Companies." All the money col- 
lected in premiums, which is not used in paying losses 
and defraying expenses, goes to the stockholders as 
profit. 

.600. riutual Companies. — A mutual company is one 
in which each policy holder participates in the gains 
and losses, and the amount of premium paid to the 
company depends upon the amount of loss sustained 
during a certain period. Such companies usually have 
no capital stock, but assess the policy holders as funds 
are needed to meet the losses. In other words, each 
policy holder contributes a small sum called premium 
to a fund out of which is paid the losses of the mem- 
bers. This of course does not avert loss, but it 
distributes it, so that, instead of falling heavily on a 
few, it falls lightly on many, and this in reality is the 
true object of all insurance. 

601. Assessment Notes — The policy holder in a 
mutual or assessment company is usually required to 
give what is called an assessment note. This note is 
held by the company, and assessments are made on it 
as the losses occur. In this' way the members get their 
insurance at actual cost, no one making a profit out 
of the business. The assessment note is usually given 



332 FIRE INSURANCE 

for an amount equal to the premium charged by stock 
companies on similar risks ; but only such part of the 
note is collected as is required to meet the actual 
losses. 

602. Lack Permanency. — Any insurance company is 
good enough so long as you have no fire; but when a 
loss occurs, then the best is not any too good. Un- 
questionably there are many good companies con- 
ducted on the assessment plan, but one strong objec- 
tion is constantly urged against them, that is, the lack 
of permanency. If they have small losses the assess- 
ments are of course light and the members are well 
pleased with the results, but if the losses are heavy the 
members become dissatisfied and many of them drop 
out. This of course if kept up for any considerable 
length of time means failure to the company. 

603. Insurable Interest. — The person taking out in- 
surance on property must have some financial interest 
in the property; otherwise the contract will be void. 
It is not necessary that this interest shall consist of 
absolute ownership, but it is sufficient if he has some 
pecuniary interest, such as that of mortgagee, mort- 
gagor, trustee, agent, etc. 

It would never do to grant policies of insurance to 
those who have no interest in the property insured, 
for that would tempt dishonest men to the crime of 



FIRE INSURANCE 333 

arson, hoping they might collect the insurance. The 
party insured must have some interest in the property 
and this interest must exist not only at the time the 
policy is taken out but also at the time of the loss. 

604. Perils Insured Against. — The ordinary policy 
insures the holder not only against loss by fire, but 
also against the loss occasioned by heat from the burn- 
ing of adjacent property. 

If damage results from water used in trying to put 
out the fire or gunpowder used in blowing up build- 
ings to stop the fire from spreading, this is also cov- 
ered by the policy. 

605. Loss by Lightning. — It has been decided that a 
loss by lightning is not a loss by fire, and no damages 
can be collected unless ignition actually takes place. 
It is customary now for insurance companies to insert 
a lightning clause in all policies, and in that case they 
are of course liable for all loss resulting from light- 
ning. 

606. Board of Underwriters. — The board of under- 
writers is an organization composed of the leading in- 
surance companies which are associated together for 
their mutual benefit. A committee is sent out to the 
various cities and towns, where they organize the local 
agents into what is called the local board of under- 
writers, and at the same time they carefully inspect 



334 FIRE INSURANCE 

each building in the business portion of the city, mak- 
ing note of all details, such as the construction, 
Avhether brick, stone, or wood, kind of roof, the pur- 
pose for which it is used, its proximity to other build- 
ings, etc. Taking all these details into considera- 
tion, they then fix the rate to be charged on each 
building and also the rate for the contents of same. 
This is published in a small book for the use of the 
agent and is called the "board rate," and no member 
of the association is allowed to deviate from same. 

In some states this organization has been abandoned 
for the reason that the courts have declared it to be a 
trust and therefore illegal. 

607. The Policy. — The policy is the contract between 
the insurer and the insured, and each company has a 
form of its own, but, owing to the ambiguity and un- 
certain meaning of many of them, and also on account 
of the tendency of the companies to surround them- 
selves with so many conditions, exceptions, etc., the 
legislatures of some states have prescribed a form of 
policy and compel its use by all companies. 

A policy usually contains a full description of the 
property, the premium paid, the amount of insurance, 
and the exact time to the hour when the insurance 
will expire. 

(508. Valued or Open Policies. — Policies are some- 



FIRE INSURANCE 335 

times made for a definite sum to be paid in case of 
total destruction of the property, and such a policy is 
called a valued policy. Other policies provide that 
the company shall pay whatever the loss may prove to 
be ; such are called open policies. 

609. Amount of Insurance. — It is customary to in- 
sure property for two-thirds or even four-fifths of its 
value, and if the insured is a person of good standing- 
he will have no trouble in getting whatever reason- 
able amount of insurance he may desire. 

It should be remembered that the amount stated in 
the policy is not the sum the company agrees to pay in 
case of loss ; but it is the limit they will pay ; in other 
words, the insured agrees that the company will not 
have to pa}' any more than the face of the policy. 

A owns a building worth $3,000 and insures it for 
$2,000. He has a loss of $500, and the company pays 
him $500. Had his loss been $3,000 he would have re- 
ceived only the face of his policy, $2,000. 

610. Loss Paid Deducted from Policy. — When a par- 
tial loss occurs and the amount is paid by the com- 
pany, the same is deducted from the face of the policy, 
for the remainder of the term of insurance. 

A insured his house for $3,000 for one year. He had 
a loss at the end of three months of $1,000 which is 
paid and endorsed on the policy. The company in- 



336 FIRE INSURANCE 

sured A for only f 3,000, and as $1,000 has been paid, 
he will have but $2,000 insurance on the property for 
the remaining nine months unless he takes out a new 
policy and pays the additional premium. 

611. Cause of Fire. — So long as no fraud has been 
committed on the part of the assured, it matters not 
how the fire originated, unless the policy contained 
some special provision touching on this point. Every 
one is of course supposed to use ordinary care, yet the 
company can not set up as a defense that the fire was 
caused by carelessness or negligence. Insurance 
would be of little protection to any one under such 
circumstances, as the majority of fires originate from 
some act of carelessness. 

612. Insurance in Several Companies. — Many people 
prefer to insure in several companies instead of one, 
and if they need insurance for $4,000 they will take 
$1,000 in four different companies rather than the 
whole amount in one company. If this plan is pur- 
sued it is necessary to have each agent give his 
consent in writing on the policy. The following 
endorsement may be used: "Other insurance permit- 
ted without notice," or "Other concurrent insurance 
amounting to $3,000 permitted." 

When more than one company has a policy on the 
same property and there is a partial loss the payment 



FIRE INSURANCE 337 

of same is pro rated. In the above instance when 
each of four companies has a risk of f 1,000, if there 
should be a loss of $100 sustained, each company 
would pay one-fourth of same, or $25. 

613. Valued Policy Law. — A number of the states, 
including Nebraska, have enacted what is known as 
the valued policy law. This law provided that when 
insured property is totally destroyed, the amount of 
insurance written in the policy shall be taken as the 
true value of the property insured, and that the com- 
pany can not set up as a defense that the property 
was insured for more than it was worth. 

The justice of this law is based on the theory that 
the agent is a judge of the value of the property, and 
will not write a policy for more than the property is 
worth, and when the property is totally destroyed it 
is difficult to prove its real value ; therefore the person 
insured, having paid premium on the face of the pol- 
icy, is entitled to the full amount, provided no fraud 
has been practiced by him. 

It is usually provided further that in case the com- 
pany contests the payment of the claim, the court 
upon rendering judgment against the company shall 
also allow the insured a reasonable sum as attorney's 
fee. In case of a partial loss the company is to pay 
the actual amount of damage. 

22 



338 FIRE INSURANCE 

614. Over Insurance. — In states where the valued 
policy law is not in force the insurance company has 
a right in case of total loss to show that property was 
insured for more than its real value, and if that fact 
can be proven the company will have to pay only the 
actual value of the property destroyed. For example, 
A insures his stock of goods for f 2,500 and it is after- 
wards totally destroyed by fire. If it can be proven 
that the stock was worth only $1,500 the insurance 
company will not be compelled to pay more than that 
sum. 

615. Vacancy.— It is usually stipulated that the 
premises insured shall not become vacated without 
invalidating the contract; therefore, it is necessary 
to have the consent of the company endorsed on the 
policy in case the building is to be unoccupied for any 
considerable length of time. 

616. Adjustment of Loss. — In case of loss the insured 
should follow closely the stipulations set forth in the 
policy. It is usually required that notice shall be 
given at once to the company, stating the approximate 
loss, the cause of fire, and all particulars regarding 
same. This statement is generally required to be 
made under oath. If notice is required to be given to 
some particular officer of the company, this should be 
strictly complied with, but if simply notice to the com- 



FIRE INSURANCE 339 

pany is required it will be sufficient if the agent be 
notified. 

617. Surrender of Policies. — Most policies have a 
provision which allows either the company or the in- 
sured to cancel the policy at any time. If for any rea- 
son the company cancels the contract it keeps only 
such a part of the premium as has been earned; but 
if the insured cancels the policy he will be charged the 
short term rates for the time the policy has been in 
force, and the balance will be returned to him in cash. 

618. False Representation. — If any material facts 
are falsely represented by the insured at the time the 
policy is written, that will invalidate the contract, and 
the same is true of the intentional concealment of any 
important matter affecting the risk. 

619. Assignment of Policy. — A policy of insurance 
is merely a personal contract and can not be assigned 
without the consent of the company. In case a loss 
occurs the insured then has a definite claim against 
the company, and that right or claim may be sold or 
transferred without the consent of the company. 

B takes out a policy of f 2,000 on a house. He sells 
the house to C, but retains the policy. The house 
burns down, but B can not collect anything, for he 
has sustained no loss; C can collect nothing because 
he has no insurance. It is well to keep in mind that: 



340 FIRE INSURANCE 

it is not the property which is insured but the indi- 
vidual. For a certain sum the owner is insured 
against loss on the property. 

If property be transferred, on which there is insur- 
ance, the policy should be assigned at once, and the 
consent of the company endorsed on it; but the sale 
of property does not imply that the insurance in force 
goes with it, for the seller may surrender the policy 
to the company and take its value for cash. 

620. Right to Rebuild — Most policies contain a stip- 
ulation giving the company the right to rebuild the 
property instead of paying the amount in cash. This 
of course would be do'ne only in cases where it was 
thought the property was overvalued. 

621. Change of Risk. — The premium charged for in- 
surance on any building is high or low according to 
the hazard or danger, and any act on the part of the 
owner changing the hazard will render the policy void. 
This may be done by materially changing the prop- 
erty, adding to it, erecting other buildings near it, or 
changing the use or ownership of the building. The 
consent of the company should always be obtained 
before doing anything that is likely to affect the 
policy. 



FIRE INSURANCE 341 

FIRE INSURANCE 

REVIEW QUESTIONS 

Define fire insurance. 

What is a policy? 

What is the premium? 

Is fire insurance a good thing? 

What is a stock company? 

What is a mutual company? 

Which is the cheaper? 

Which is the better? 

What objection is there to a mutual company? 

What is an assessment note? 

What is meant by an insurable interest? 

Does fire insurance cover loss by lightning? 

What is the "board of underwriters"? 

What is a valued policy? 

For what amount may property be insured? 

May the same property be insured in several com- 
panies? 

What is the "valued policy law"? 

If a person insures his property for more than its 
value, can he collect all the insurance if it burns? 

What effect does false representation have on the 
policy? 



342 FIRE INSURANCE 

May a policy be assigned without the consent of the 
company? 

Has the company a right to rebuild the property 
destroyed instead of paying the insurance? 



LIFE INSURANCE 343 



CHAPTER XXVIII 

LIFE INSURANCE 

622. Definition. — Life insurance is a contract by 
which the insurance company agrees for a stipulated 
consideration to pay a certain sum of money to the 
person named in the policy at the death of the in- 
sured ; or if the insured lives to a certain age the com- 
pany will pay it to him personally. 

623. Parties. — There are three parties to a contract 
of life insurance : (1) the company or insurer ; (2) the 
person whose life is the subject of the risk, called the 
insured; (3) the one to whom the money is made pay- 
able, called the beneficiary. A person may, if he de- 
sires, have the insurance payable to himself or his 
estate, and in that case it would at his death be di- 
vided among his heirs according to the law of the 
state. 

624. Policy. — The policy is the contract between 
the insured and the company, and, aside from specify- 
ing the amount of insurance, name of the beneficiary, 
and the premium paid, it usually contains stipulations 
that the insured shall not engage in certain hazardous 
occupations or remove to or travel in certain un- 



344 LIFE INSURANCE 

healthy regions or countries without the consent of 
the company. 

625. Fire and Life Insurance Compared In fire in- 
surance the value of the property insured is never lost 
sight of. It is made the basis of the contract of in- 
surance as well as the basis for settlement in case of 
loss. The insured is supposed when a loss occurs to 
be fully indemnified by the company, but it is not the 
intention that he should receive either more or less 
than the amount of the actual loss sustained, provided 
he has enough insurance to cover the loss. 

On the other hand, life insurance is not regarded 
as a contract of indemnity, and the amount paid in 
event of death is not intended in any sense as a repara- 
tion or indemnity for the loss sustained in the death of 
the assured. 

A fire may never come to one's home, but death is 
absolutely certain, and the man of small means who 
fails to take out a policy of life insurance and thus 
make some provision for his family after he is gone is 
regarded as either very thoughtless or very selfish. 

626. Amount of Insurance. — Any one who can pass 
the physical examination may take all the insurance 
on his life that he is able to pay for, and he may in- 
sure in as many different companies as he desires. 

627. Insurable Interest. — No one has a right to take 



LIFE INSURANCE 345 

out insurance on the life of another unless he has 
some interest in that person either by ties of blood, 
marriage, or contract. Any person may have his own 
life insured, and he may have the life of any one else 
insured if the relations are such that he would suffer a 
pecuniary loss in case of the death of the assured. 
One partner may have the life of his copartner in- 
sured. A creditor has an insurable interest in the 
life of his debtor. A child may insure its parents, or 
the parents may insure the child. 

628. Exception.- — While it is necessary to have an 
insurable interest at the time the policy is taken out, 
such interest need not exist at the time of the death of 
the insured; therefore if A owed you $1,000 and you 
had his life insured for that amount for one year, he 
might pay you the debt in three months, and you 
would also receive the insurance in case he died before 
the end of the year. 

629. Does not Cancel Debt. — If a creditor takes out a 
policy on the life of the debtor he will be able to collect 
the insurance in case the debtor dies, but this will not 
cancel the debt, and the creditor may collect that also 
from the estate of the deceased debtor. 

Example. — Brown & Co. sell C a bill of goods foe 
$5,000. They feel sure he will pay if he lives, but, 
fearing a loss in case he should die, they take out a 



346 LIFE INSURANCE 

policy of |5,000 on C's life. Soon afterward C dies. 
Brown & Co. receive $5,000 from the insurance com- 
pany, but the estate of C still owes them $5,000, and 
they have a right to collect same. Had Mr. C taken 
out insurance himself in favor of Brown & Co. and 
paid the premium himself, then the insurance would 
have canceled the debt, 

630. Beneficiary. — When a person places insurance 
on his own life and pays the premium himself, he has 
a right to make the policy payable to any one, even 
though such person be a stranger and has no insur- 
able interest in him. This individual who is to re- 
ceive the mone}^ at the death of the insured is called 
the beneficiary. 

The rule requiring the beneficiary to have an insur- 
able interest in the assured applies only when the 
beneficiary takes out the insurance himself and pays 
the premium on same. 

631. Rights of Creditors. — In most states the life in- 
surance of the deceased is not liable for the debts of 
the insured unless it was made payable to his estate. 
Example. — Mr. B carries $5,000 life insurance, pay- 
able to his wife, and at his death it is learned that the 
debts are much more than can be paid from the es- 
tate; yet no part of the insurance money can be taken 
from Mrs. B to pay these debts. 



LIFE INSURANCE 347 

632. Change of Beneficiary. — In the absence of any 
statute or stipulation in the policy or articles of in- 
corporation to the contrary, the assured may assign 
the policy or change the beneficiary at his pleasure 
without consulting the company, provided he owns th£ 
policy and the same is made payable to himself. 

It is held that where the policy is made payable to 
some party other than the assured, it can not then be 
assigned without the consent of the beneficiary. Pol- 
icies usually contain provisions for assignment, and 
these should be adhered to strictly. 

633. Application. — The party seeking insurance is 
required to make a formal written application in 
which is given a great variety of information, touch- 
ing upon the age, occupation, habits, health, etc., of 
the applicant. But it does not stop there, for the com- 
pany wants to know the number of brothers and sis- 
ters he has; also their age and the condition of 
health of each, and if any are dead, at what age they 
died, and from what cause. It also asks the same 
question about the applicant's parents and grand- 
parents. 

The answers to all these questions, together with the 
report of the examining physician, will form the basis 
for a decision as to whether or not the company will 
accept the application and issue the policy. 



348 LIFE INSURANCE 

These answers should all be made in good faith, for 
they become a part of the contract with the company, 
and the validity of the policy may depend upon the 
correctness of these answers. 

634. Kinds of Companies. — There are three principal 
kinds of life insurance companies: stock companies, 
cooperative companies or fraternal orders as they are 
more often called, and mutual companies. 

635. Stock Companies. — The stock companies are or- 
ganized and conducted in the same general manner as 
stock companies engaged in other lines of business, 
the object, of course, being to make money for the 
shareholders. 

636. Fraternal Insurance Orders. — Insurance soci- 
eties of this kind are usually organized on the lodge 
plan, and each member is assessed a fixed sum each 
month or quarter to pay the losses as they occur. 
Some orders grade the amount of assessment accord- 
ing to the age of the member on joining, the younger 
members paying less than those of advanced years. 

Other orders assess all the same amount, but vary 
the amount of the policy according to the age of the 
applicant, the younger members receiving larger pol- 
icies than the older ones. This principle is also some- 
times used with reference to the occupation, the mem- 
bers engaged in some hazardous occupation, such as 






LIFE INSURANCE 349 

railroading, receiving smaller policies than those in 
less dangerous work; yet all pay the same premium. 

637. No Investment Feature — Insurance which is 
taken in these fraternal orders is purely for protec- 
tion, and when the associations are conducted in an 
efficient manner, the good they do can scarcely be 
overestimated. It should be observed, however, that 
many small orders of this kind are started by individu- 
als who have not the ability necessary to carry them to 
success, and it is always the safest plan to select a 
society which is well established and has several thou- 
sand members. 

638. Disadvantages of Fraternal Insurance. — While 
life insurance in the best fraternal orders is by far 
cheaper than can be had by any other plan, yet it has 
one weak point, viz., lack of permanency. As a rule, 
fraternal insurance orders are comparatively short- 
lived. An order becomes popular and grows rapidly 
for a number of years, then it begins to decline. When 
new members cease to come in and old ones begin 
to pass away rapidly, the assessments must be made 
oftener. This causes others to drop out, especially the 
younger members, and if the decline can not be 
checked by the addition of new members, it is a matter 
of only a few years when the order will have to dis- 
band. 



350 LIFE INSURANCE 

639. Good While They Last. — As long as a fraternal 
insurance order has a large membership there is no 
trouble about paying all the losses promptly, in fact, 
it is often claimed that they are more prompt in that 
respect than old line companies. But even if an order 
does disband, it can not be claimed that the members 
lose anything, for they have good insurance during 
the life of the order. 

The only disadvantage comes from the fact that a 
man may take out insurance in one of these orders 
and, after paying the assessments for twenty or thirty 
years, the order is likely to quit business and leave 
him without insurance. This would cause him no in- 
jury, provided he could take out another policy in 
some young and thriving association ; but by that time 
he would perhaps be too old, or unable to pass the 
physical examination; hence at the period of life when 
his family needs protection most he is without insur- 
ance, and is unable to get it in any company at any 
price. 

640. Mutual Companies. — Insurance companies of 
this class have no capital stock, but the premium re- 
ceived is invested in bonds, stocks, mortgages, etc., and 
all profits resulting therefrom belong to the policy 
holders. Companies organized on this plan are in 
high favor with the insuring public, and especially 



LIFE INSURANCE 351 

with those persons who wish to combine an invest- 
ment with life insurance. Some of these companies 
have grown to such gigantic proportions that they eas- 
ily rank among the greatest financial institutions of 
the world. The three largest mutual life insurance 
companies in this country have assets aggregating 
over |900,000 ? 000, or about as much as the combined 
capital of all the national, state, and private banks in 
the United States. Aside from the three companies 
referred to, there are many others controlling im- 
mense fortunes. 

641. How Accumulated. — To whom do these millions 
belong, and how are they accumulated? This is a 
question which naturally arises. To answer briefly, 
they belong to the policy holders and are accumulated 
by the policy holder paying the company a larger pre- 
mium than is necessary for the settlement of immedi- 
ate losses. If the policy owners paid only enough to 
meet the losses as they occurred, it would of course be 
impossible to accumulate any fund, and they would 
not differ materially from the fraternal associations. 

642. Plans of Insurance. — There are many different 
plans for insurance, but 'we will notice only a few 
Which are in most common use. The majority of these 
plans combine an investment with life insurance. The 
higher the premium the more prominent the invest- 



352 LIFE INSURANCE 

ment feature becomes, while the lowest premium buys 
a policy of life insurance only. 

643. Ordinary Life Policy. — An ordinary life policy 
is one in which an annual premium is paid during the 
life of the assured, and at his death the face of the 
policy is payable to the beneficiary. This plan is 
purely life insurance, and the amount of premium to 
be paid is less than in any other form of policy. 

644. Limited Payment Policy. — This is a policy pro- 
viding for the payment of a limited number of annual 
premiums, usually twenty, after which no further pay- 
ments will be required. 

At the end of the twenty years, if the premiums are 
all paid the company will issue the assured a paid 
up policy payable at his death to the person therein 
named. The premium on this plan is higher than on 
an ordinary life policy ; but many prefer a little higher 
rate for twenty years that they may have the satisfac- 
tion of knowing the policy is then fully paid up. A 
man of thirty will usually find the next twenty years 
to be the most productive period of his life, but it 
might be quite a hardship to pay the premiums each 
rear after reaching an advanced age. 

645. Endowment and Bond Policies. — In the various 
forms of endowment and bond policies the investment 
feature is made very prominent; therefore such poli- 






LIFE INSURANCE 353 

cies are suited to persons who wish to invest then- 
money at a low rate of interest, aside from carrying 
insurance. 

After the premiums have been paid for a certain 
number of years the assured may receive the insur- 
ance himself if alive, but of course the amount he re 
ceives will depend largely upon the amount he has 
paid in. 

It requires a certain sum of money to meet the death 
claims and expenses, and whatever amount is paid by 
the insured to the company in excess of this require- 
ment is practically a loan to the company, to be re- 
turned to him with increase if he lives to a certain 
age, or according to the terms of the policy. 

646. Continuous Instalments. — The continuous in- 
stalment policy offers the surest protection that a man 
can provide for his family through the medium of life 
insurance. Under this plan the beneficiary does not 
receive the full amount of the insurance upon the 
death of the assured, but is paid a stipulated sum 
yearly or quarterly during life. In determining the 
amount of premium to be charged, the age of the 
beneficiary as well as that of the assured must be taken 
into account. To illustrate, Mr. B, twenty-five year* 
of age, takes out a |5,000, twenty payment bond pol- 
icy, continuous instalment, on his life, payable at his 

23 



354 LIFE INSURANCE 

death to his wife, who is twenty-three years old. The 
annual premium is $128.45. Should he live to make 
twenty payments the policy would then be paid up and 
continue in full force without further payment. At 
the death of Mr. B the company will pay his wife 
$326.30 and continue to pay her this amount annually 
as long as she lives. Should she die before twenty pay- 
ments have been paid to her, the company will con- 
tinue the payments to her heirs until a total of twenty 
yearly instalments have been paid. 

647. Advantage of Continuous Instalment. — The real 
object of life insurance is protection, and the man who 
leaves his wife or child a life income of $326.30 annu- 
ally has given a far surer protection than would be af- 
forded by leaving $5,000 in one amount. 

The risk incident to the investment and reinvest- 
ment of a large sum of money by those not trained to 
such responsibilities is very great, and in many cases 
the money disappears in a few months, or years at 
most, and the plans and savings of a lifetime come to 
naught. 

618. Manner of Death. — Most policies contain a pro- 
vision that the contract shall become void in case the 
insured commits suicide within two years from 
the date of the policy, or in case the insured loses his 
life by fighting a duel. Death at the hands of justice 



LIFE INSURANCE 355 

also revokes the contract; this includes death at the 
hands of a public executioner, or being killed by an 
officer while resisting arrest, or committing burglary. 



LIFE INSURANCE 

REVIEW QUESTIONS 

Define life insurance. 

Who is a beneficiary? 

Is there any limit to the amount of insurance a per- 
son may carry on his life? 

What is meant by having an insurable interest? 

Is it necessary that an insurable interest exist at 
the time of the death of the assured? 

If a creditor takes out a policy on the life of the 
debtor, will the insurance cancel the debt, if the in- 
sured dies? 

May the beneficiary be changed? 

What is the nature of the application for life in- 
surance? 

What is a stock company? 

What is a fraternal company? 

What is a mutual company? 

Is there any investment feature in the fraternal 
company? 

What is the chief objection to fraternal companies? 



356 T.JFE INSURANCE 

How do the mutual companies accumulate such 
large assets? 

Define an ordinary life policy . 

Define a limited payment policy. 

Define endowment and bond policies. 

Define continuous instalment policies. 

What is the advantage of a continuous instalment 
policy? 



CASUALTY INSURANCE 357 

CHAPTER XXIX 

CASUALTY INSURANCE 

649. Definition, — Casualty insurance is a contract 
by which the company agrees to indemnify the as- 
sured for loss or damage growing out of unforeseen 
casualties or accidents. 

This branch of insurance is comparatively new, and 
while it will perhaps never reach the degree of impor- 
tance accorded to life and fire insurance, yet it is meet- 
ing with much favor, especially in the cities. 

650. Accident Insurance. — This consists of insur- 
ance against injury or loss of life from accidental 
cause. The contract usually specifies the amount of 
indemnity to be paid each week in case the insured is 
incapacitated for work by accident ; it also states the 
amount to be paid in case of the loss of an eye, hand, 
or foot, and names the fixed sum to be paid in case 
death results from the accident within a certain speci- 
fied time. 

AYhen a fixed premium is charged it is not deter- 
mined by the age or health of the insured, as in life in- 
surance, but is based upon the hazards or dangers of 
the business in which he is engaged. 

Contracts Of accident insurance are usually made 



358 CASUALTY INSURANCE 

by the year or quarter, but for the convenience of trav- 
elers, all railway ticket offices will sell to any one, for 
twenty-five cents, a policy of $5,000 for one day. 

651. Employers' Insurance. — Every person who em- 
ploys a large number of workmen is constantly an- 
noyed with suits for damage. These suits are often 
based upon just claims and usually grow out of acci- 
dents caused by lack of suitable apparatus, or machin- 
ery, or negligence of some of the workmen, etc. ; but 
whether the claim is just or not, the employer must 
undergo the vexation and unpleasantness of a lawsuit. 

If he takes out an Employer's Liability policy he is 
then protected by the company from all losses of this 
kind and also from the trouble of looking after the 
matter. 

When an accident occurs the insurance company 
sends a representative to thoroughly investigate the 
matter, and the employer has nothing whatever to do 
with it. 

If the company decides, after learning the facts, 
that the employer is liable, they settle the claim at 
once, but if the injured party brings a suit, the insur- 
ance company takes complete charge of same and pays 
all expenses and costs, just as if the suit was brought 
against it. 

652. Plate Glass Insurance. — This class of insurance 






CASUALTY INSURANCE 359 

has grown to considerable importance in recent years, 
and it is now customary to insure large plate glass 
windows against breakage. Glass of this kind is very 
expensive and is constantly exposed to the danger of 
being broken by wind, hail, or some other cause. 
Large plate glass mirrors are often insured also. In 
case of loss, the company usually replaces the glass 
instead of paying the money; for by special arrange- 
ment the}^ are able to get a new one at a lower price 
than the insured could purchase it. 

653. Guaranty of Title — There are a number of very 
large companies now engaged in the business of guar- 
anteeing the titles of real estate. 

When one sells or mortgages real estate he is ex- 
pected to give an abstract of title to same. This is 
very expensive, especially in the parts of the country 
which have long been settled, for the abstract must 
contain a complete history of the property, from the 
time of the first grant down to date. 

Instead of having an abstract made the OAvner 
makes application for a policy guaranteeing the title. 
The company has its expert real estate attorney care- 
fully examine the records, and if the title is found 
good, a policy is issued guaranteeing to the purchaser 
that the title is clear. 

In case the title is afterwards challenged by any 



360 CASUALTY INSURANCE 

one, the company takes full charge of the defense and 
settles the case in whatever manner is deemed best, 
but in any eYeni the purchaser is not allowed to suffer 
loss. 

A new policy must be taken out each time the land 
is transferred, as the policy can not be assigned with 
the property. 

654. Steam Boilers. — There are companies that 
make a special business of insuring against loss from 
explosion or rupture of steam boilers. Insurance of 
this kind covers not alone the damage done to the 
boiler, but to other property owned by the assured as 
well. If any person is injured or his property de- 
stroyed by the explosion the policy protects the as- 
sured from loss on that account also ; but it does not 
cover loss by fire, even when it is caused by the ex- 
plosion. 

The company sends its expert around frequently 
to test the boilers, and unless they are kept in good 
condition the policy may be canceled. 

655. Guaranty of Honesty. — Surety companies now 
do a very large business issuing policies guaranteeing 
the honesty of the person named therein. Persons who 
have been appointed to responsible positions are usu- 
ally required to give a bond for the faithful discharge 
of their duties. Many do not like to ask a friend to 



CASUALTY INSURANCE 361 

sign a bond, and many others have no friends of high 
financial standing who are willing to sign with them. 
They therefore make application to a bond company, 
and if the applicant can give satisfactory references 
and the company finds that he has a good record, a 
policy or bond will be issued to the individual or cor- 
poration upon the payment of a premium by the 
employee. 



CASUALTY INSURANCE 

REVIEW QUESTIONS 

Define casualty insurance. 
Define accident insurance. 

Is the age taken into consideration in fixing the 
premium? 

Define employer's liability policy. 
Define plate glass insurance. 
Define steam boiler insurance. 
Define guaranty of title insurance. 
Define guaranty of honesty insurance. 



362 REAL ESTATE 



CHAPTER XXX 

REAL ESTATE 

656. Definition. — Real estate consists of land and 
everything which is permanently attached to same. 
It includes all those things which man has artificially 
attached to the earth, such as houses, fences, etc., as 
well as the results of nature's work, such as trees, oil, 
coal, minerals, etc. The owner of the land is said to 
have a title to everything upon it, everything in the 
sky above it, and everything in the earth beneath it. 
His title therefore extends upward without limit and 
downward to the center of the earth. 

657. Crops, Fruit, etc. — The purchaser of land is 
entitled to all growing crops, whether they be grain 
or fruit, unless it is otherwise stipulated in the deed, 
but crops which have come to full maturity and which 
have ceased to draw nourishment from the soil, and 
are ready to be harvested, have been held to be per- 
sonal property, although still attached to the land. 

658. Easements. — Under the title of easements may 
be listed all the rights, interests, and privileges which 
the public or the owner of lands have in the lands be- 
longing to another. 

Among the most important kinds of easements may 



REAL ESTATE 3G3 

be mentioned, (1) right of way, (2) water rights, (3) 
party walls, (4) right to draw water, oil, or gas by 
pipes or conduits across the land of another. 

659. Right of Way. — This consists of the right to 
pass over the land belonging to another person. The 
object may be to reach a highway, another piece of 
land, a well or spring, or for any other necessary 
purpose. 

This right may be conveyed in the same manner in 
which the land itself is conveyed, that is, by deed, or 
it may arise from necessity or by prescription. 

If a man sells another a piece of land wholly sur- 
rounded by his own land, the grant carries with it the 
right to pass to and from the purchased land, even 
though the right of way is not mentioned in the deed. 
This would be a right of way arising from necessity, 
for the grant of land would of course be useless with- 
out a road leading to it. If, however, a highway 
should afterwards be laid out affording access to the 
land, the former right would be lost. 

The right of way by prescription arises when a per- 
son has passed over the land of another and used it as 
a lane or road for more than twenty years. 

660. Right of Water. ^The owner of land has a cer- 
tain right to the water in streams running across the 
property, and the law will protect these rights as rig- 



864 REAL ESTATE 

idly as it will the ownership of the land. He has the 
right to the natural and uninterrupted flow of 
the water across his estate and may use and enjoy the 
same, but he must return it in its natural course 
to the owner below him, without diminishing its 
quantity in a material degree or polluting it with 
impurities. 

The owner has no right to dam up a stream so that 
it will flood the land above him, If a farm is bounded 
by a stream the title extends to the thread of the 
stream, that is, the channel where the water would 
run last if the stream were drying up. 

661. Party Walls. — A party wall is one which sup- 
ports two adjoining buildings. Should it at any time 
need repair both owners are bound to contribute to 
such expense. 

If the wall be destroyed by fire the title of the joint 
owners returns to the original dividing line of the 
land, and if one rebuilds so that a part of the wall ex- 
tends over on the land of his neighbor, the latter may 
use the same without paying for it. 

662. Trees.— Any one acquiring the title of land ac- 
quires the title of the trees on same also. This does 
not apply to trees which have already been cut and 
prepared for market, such as cord wood, posts, logs, 
etc., for they are regarded as personal property. 



REAL ESTATE 3G5 

If trees growing on the land adjacent to your own 
are so near the line that they extend their branches 
over your property, you have a right to cut off such 
overhanging- branches and put them off your premises, 
but should there be fruit on the branches, you have 
no right to it, and the owner may peaceably enter 
and take the same. 

663. Estate. — An estate consists of the interest 
which a person has in landed property. This may 
consist of an absolute ownership or simply a limited 
or conditional interest. It may be a right to use the 
property for life, or for a limited time, or until the 
happening of some event. Usually the owner of any 
estate may sell and convey to another whatever inter- 
est he possesses in it, unless such conveyance is for- 
bidden either expressly or by implication in the grant 
by which he received the estate. 

664. Fee Simple — The highest estate possible to be 
had in property is called a fee simple. It is a pure in- 
heritance without condition or qualification. The 
owner of land held in fee simple has unlimited power 
to sell, mortgage, or lease the same, or to dispose of it 
by will at death. If he neither deeds nor wills the 
estate to any one, the title in fee simple will pass to 
his heirs at his death. 

665. Life Estate. — An estate for life is not an estate 



366 REAL ESTATE 

of inheritance, and the rights of the holder to enjoy 
its benefits and profits are limited. He is bound to 
keep the premises in repair, but is not expected to 
build or replace property destroyed by no fault of his. 
The two life estates, Dower and Curtesy, will be 
briefly considered. 

666. Dower. — This is the life interest which the wife 
has in her husband's landed property. In most states 
the widow has, during her life, one-third of the real 
estate of which the husband was seized during mar- 
riage, and she is also given a part of the personal prop- 
erty. The dower right exists as soon as the husband ac- 
quires property, but it is said to be inchoate (in'- 
ko-at), that is, it is just commenced and does not be- 
come an active estate until after the husband's death. 

The dower terminates at the widow's death and de- 
scends to the husband's heirs. In most states the wife 
can not be barred from her dower, but of course she 
can voluntarily release the same. This is usually done 
by signing a deed of conveyance with her husband. 

If the husband leaves a will giving his wife certain 
other property in lieu of her dower, she is not obliged 
to take it, but may choose between the will and the 
dower. 

667. Homestead. — The family residence and a cer- 
tain amount of land adjoining the same is, in most of 






REAL ESTATE 367 

the states, exempt, and can not be taken by process of 
law to pay debts, unless the debt is secured by a mort- 
gage or mechanic's lien on same, and in case of mort- 
gage the wife must sign with her husband, the same 
as in a deed of conveyance. 

668. By Curtesy. — The estate of curtesy is the right 
which the husband has in his wife's landed property 
of which she was seized during marriage. The hus- 
band is not limited to one-third as the wife is by dower, 
but he is given a life interest in the wife's entire estate. 
The one condition of the vesting of this estate is that 
there shall be issue born alive. The law pertaining to 
curtesy and dower has been abolished in some states 
and modified in many others, and any one especially 
interested should consult the statutes of his own 
state. 

669. Estate for Years. — This more properly comes 
under the chapter of "Landlords and Tenants." An 
estate for years is usually conveyed by an instrument 
called a lease. The owner of an estate for years is not 
a freeholder in any sense, for the freeholder must own 
either an estate in fee simple or a life estate. 

670. Conditional Estate.' — A conditional estate is one 
in which the grant qualifies or restricts the interest 
which is conveyed. The terms of the deed may make 
the transfer conditional upon the performance of some 



30>8 REAL ESTATE 

particular act, or it may declare that a certain act will 
defeat the estate. 

A husband may leave by will certain lands to his 
wife to be used and enjoyed by her during her natural 
life, upon condition that she remain a widow. It is 
sometimes stipulated in a deed of transfer that the 
pioperty shall revert back to the grantor in case it is 
ever used for the sale of intoxicating liquors or for cer- 
tain other purposes therein mentioned. 

671. Title to Real Estate.— Title has reference to the 
means by which the owner of land has legal posses- 
sion of it. It is a well known principle in law that no 
one can acquire a good title to anything from one who 
does not himself possess a clear title. 

672. Whence the Title. — Under the common law of 
England the original source of title is the king. In 
this country, the title to the greater part of the land is 

♦ derived from the United States. 

There are, however, some exceptions; for the pri- 
vate grants made by the French, Spanish, and Mexi- 
can governments in the Louisiana purchase, in Texas, 
in California, and some of the other states on the Pa- 
cific slope, were protected by the various treaties of 
concession; therefore the present owners of such 
grants do not derive their titles from the United 
States. 



REAL ESTATE 369 

A few of the original thirteen states claimed to own 
all unoccupied soil lying west of their boundaries, and 
in a number of cases they granted a portion of same to 
private purchasers before they surrendered their 
rights to the nation, and in such cases the titles are de- 
rived from the individual states. 

673. Title by Descent. — Title by descent is the title 
which is acquired by the heir who inherits property 
from another. 

When a person dies without a will his property is 
distributed among his relatives according to the law 
of descent, the statutes of the individual states gov- 
erning in the matter. 

674. Title by Will. — A will is a document by which 
an individual makes disposition of his property, the 
title to pass at his death. The same will may dispose 
of both real estate and personal property, but in case 
of landed property it is called a devise, while if per- 
sonal property it is known as a legacy or bequest. 

675. Title by Prescription. — The title by prescrip- 
tion is acquired in real estate by an uninterrupted, 
undisputed, and peaceable occupancy of the land for 
a period of twenty years. A few of the states have 
fixed the time a little longer or a little shorter than 
twenty years, as it is regulated by statutes. 

676. Conditions. — It should be remembered that the 

24 



370 REAL ESTATE 

possession of the land for twenty years does not in it- 
self give a title, but there are other conditions to ac- 
quiring the title, viz., the possession must be continu- 
ous, it must be undisputed, it must be open and visible 
to others. Suppose the fence separating ytiur field 
from your neighbor's is ten feet on your land, and at 
the end of twenty years your neighbor claims the strip 
of land as his own. To justify this claim he must 
show that the fence has not only stood there twenty 
years, but that he has used the land with your knowl- 
edge and without objection from you, and that you 
knew during these years what your rights were and 
made no protest. 

677. Title by Involuntary Alienation. — Whenever the 
title to land is alienated or transferred without the 
consent of the owner it is said to be involuntary alien- 
ation. Such transfers often take place in one of the 
following ways: 

1. When land is sold for taxes. 

2. When land is sold upon execution to satisfy a 
mortgage or other debt. 

3. When the government exercises the right of em- 
inent domain. 

4. When the lands of infants or other incompetent 
persons are sold by order of court for their benefit. 

678. Public Lands. — The public lands in the United 



EEAL ESTxlTE 371 

States consist of all the vast territory which came into 
the possession of the Union at the close of the Revolu- 
tionary war, together with all that was later ceded by 
the different states, as well as the immense additions 
which have since been made by treaty or by conquest. 

679. Metes and Bounds.. — A very unsatisfactory sys- 
tem of land surveying was in use among the colonists. 
The purchasers or settlers of land fixed the boundaries 
by the streams when they could, but when this was im- 
possible they "blazed" the trees or marked the stones 
to indicate the limit of their estates. This was called 
the system of "metes and bounds," but it has proved 
a source of endless dispute and litigation. 

680. United States Survey. — At an early date Con- 
gress adopted a very simple and at the same time a 
very satisfactory system of surveying the public do- 
main. It was first put into practical use in 1802, and 
with a few slight changes it has continued in use to 
the present time. 

681. Land District.— The whole of the public do- 
main is divided into what is called land districts, and 
a surveyor general, who has full control of all sur- 
veys, is placed in charge of each district. 

682. Principal Meridian. — Through each district a 
meridian line is run, the same being carefully estab- 



372 REAL ESTATE 

lished by astronomical measurements and extending 
througl) the entire district. 

This principal meridian is given a particular name 
and is made the standard for all north and south 
lines, and all guide meridians cutting the domain 
into smaller tracts must be parallel with it. 

The principal meridian extending through Ne- 
braska and Kansas is called the Sixth Principal Me- 
ridian, and it coincides with 97° 22' west from 
Greenwich. 

683. Ranges. — Other meridians are drawn six miles 
apart parallel with the principal meridian. This cuts 
the entire district into long strips six miles wide ex- 
tending north and south, and these strips are called 
ranges. They are numbered in regular order I, II, III, 
etc., both east and west from the principal meridian. 

684. Base Lines. — Thus far we have noticed only the 
meridian lines, all of which run north and south, but 
another important line is called the base line, which 
runs east and west through the district. 

Like the principal meridian, its position is accu- 
rately determined astronomically. The principal base 
line for Nebraska and Kansas coincides with the for- 
tieth parallel of north latitude, and forms the boun- 
dary between the two states. 

685. Townships. — Parallel with the base line other 



REAL ESTATE 



373 



No. 72.— Arrangement of Townships and Ranges 





1* 

> 


> 


> 


> 


g 


M 




5 l/l 


W 


W 

M 




Range 
Range 
Range 


C 


be be u 
CSC 

CS CC CC 


bo 
n 


bo bo 

a a 
a cd 
« as 




vir vi v 


IV 


III II I 


I 


ii in 




9th Township North 9 
























8th Township North 8 
























7th Townshio North 7 
























6th Township North 6 
























5th Township North 5 
























4th Township North 4 
























3d Township North 3 
























2d Township North 2 
























1st Township North 1 
























1st Township South 1 
























2d Township S->uth 2 
























3d Township South 3 

















































lines are drawn six miles apart. This cuts the land 
of the entire district into tracts six miles square, each 
containing thirty-six square miles or 23,040 acres "as 
nearly as may be." Each of these squares is called a 
township, or geographical township, that it may not be 
confused with organized townships. 



374 REAL ESTATE 

The townships are numbered 1, 2, 3,' etc., north and 
south from the principal parallel of latitude, called 
the base line. Thus, if the nearest point in a township 
lies twenty-four miles east of the principal meridian 
and twenty miles north of the base line it is called 
township four north, range five east. 

686. Sections. — The townships, which, as we have 
seen, are six miles square, are divided into tracts only 
one mile square, containing 640 acres and called sec- 
tions. The sections in every township are numbered 
from one to thirty-six, beginning at the northeast 
corner of the township and going west from one to 
six, then east from seven to twelve, and so on to 
thirty-six, which is always at the southeast corner of 
the township. 

The section may be further divided into half sec- 
tions, quarter sections, eighties, forties, etc. 

687. School Section. — In some of the western states 
section sixteen in each township has been granted by 
the United States for the benefit of the public schools. 
In Nebraska sections sixteen and thirty-six of each 
township have been granted to the State for school 
purposes. 

688. Simple System. — This system of surveying is 
so simple that the smallest subdivision of land may be 
described with the greatest accuracy, and located with 



NUISANCE 375 

ease. Thus : the N. W. J of the N. E. \ of Section 10, 
Township 5 N., Range 6 W. of the Sixth Principal Me- 
ridian, describes a certain forty acres so accurately 
that there can be no possible mistake. 

689. City Lots. — In cities the land is divided into 
blocks and lots, and may be described by simply re- 
ferring to the number of the lot, block, and name of 
the addition, if it is not in the original town, thus: 
lot 4, block 7, Baker's addition to the city of Grand 
Island, Hall county, Nebraska. 

690. Converging of Meridians. — The meridian lines 
converge as they extend northward, and, taking into 
account this obliquity of the meridians, proper offsets 
are made in accordance with an established system. 
Some fractional townships result from making this 
correction. 

NUISANCE 

691. Definition. — A nuisance is anything that an- 
noys, offends, or interferes with the enjoyment of life 
or the ordinary use of property. 

Every individual has a right to pure air, pure water, 
plenty of light, to be free from unreasonable noise, of- 
fensive odors, etc. Anything which interferes with 
these rights is called a nuisance. 

692. Public Nuisance. — When a nuisance has reached 
such magnitude that it affects an entire neighborhood 



376 NUISANCE 

or locality it is called a public nuisance, and the of 
fender is liable to a criminal prosecution by the public 
authorities. A public nuisance may be also a private 
nuisance as to any one especially injured. 

693. Private Nuisance. — A private nuisance is one 
that offends a single individual or only a few persons, 
and the person creating or maintaining it is liable 
only to an action for damages by the injured parties. 

694. Rights of Others. — A person occupying prop- 
erty, even though he owns it in fee simple, must show 
due respect for certain rights which the law gives to 
his neighbor. He must not do anything or conduct 
any business that will seriously annoy his neighbor 
or interfere with the free enjoyment of his property. 
Thus, the use of steam power, though on one's own 
premises and for a lawful purpose, may be a nuisance 
if by reason of being in- one of several closely built 
dwellings the vibration and noise cause unreason- 
able injury to the property or annoyance to the 
occupants. 

695. What Constitutes a Nuisance. — It is difficult to 
say just what constitutes a nuisance, as everything de- 
pends upon the circumstances surrounding the indi- 
vidual case. 

Any serious obstruction of a highway, except when 
authorized by law, is a nuisance, but the temporary 



NUISANCE 377 

use of a reasonable part of a highway for a legitimate 
purpose, such as removing a building or the deposit 
of building materials being used, is not necessarily a 
nuisance. 

A saloon, billiard hall, bowling alley, and other sim- 
ilar resorts may or may not be a nuisance according 
to the manner in which it is conducted. Smoke, of- 
fensive odors, injurious vapors, ringing of bells, 
slaughter houses, noises from factories, and many 
other things have been held in some cases to be 
nuisances, and in others not to be nuisances, accord- 
ing to the merits of the individual case. 

696. Must be Reasonable. — Men must be reasonable 
in their demands, and it should not be supposed that 
every disagreeable noise or irritating sound consti- 
tutes a nuisance. Some people being of nervous tem- 
perament and highly sensitive are often disturbed by 
something which those of ordinary sensibilities and 
different temperament would not regard as serious. 



378 REAL ESTATE 

REAL ESTATE 

REVIEW QUESTIONS 

Define real estate. 

Does it include crops, trees, etc.? 

Define easement. * 

Define right of way. 

Define water right. 

Define party wall. 

If trees grow near the dividing line and hang over 
on each side of the fence, what are the rights of the 
owner of the land? 

What is meant by an estate? 

What is meant by fee simple? 

What is meant by life estate? 

What is meant by dower? 

What is meant by curtesy? 

What is meant by an estate for years? 

What is a homestead? 

What is a conditional estate? 

What is meant by title to real estate? 

From whence comes the title? 

Define title by descent. 

Define title by will. 

Define title by involuntary alienation. 

Define title by prescription. 

What are public lands? 



REAL ESTATE 379 



What is the United States survey? 

Define a land district. 

What is a principal meridian? 

Define range. 

Define base line. 

Define township line. 

Define section. 

What is school land? 

What is a nuisance? 

What is a public nuisance? 

What is a private nuisance? 



380 EEAL ESTATE CONVEYANCES 

CHAPTER XXXI 

REAL ESTATE CONVEYANCES 

697. Deed of Conveyance. — A deed of conveyance is 
an instrument, either printed or written, which trans- 
fers the title of landed property from one person to 
another. The deeds now used in most of the western 
states are much shorter and simpler than formerly, 
owing to statutory regulations. 

The law of the state where the property is located 
always governs the transfer and should be consulted. 

698. Parties. — The parties to a deed are called the 
grantor and the grantee, the grantor being the one 
who gives the deed, while the grantee is the one to 
whom the transfer is made. 

699. Grantor. — Any one competent to make an or- 
dinary contract may usually become the grantor in a 
deed of conveyance. He must, of course, be of legal 
age and sound mind. 

Deeds of infants are not absolutely void, but only 
voidable. The infant may either annul or confirm the 
deed on becoming of age. If, however, the deed is 
regularly made by the guardian of the infant, under 
order of the court, the transfer will be binding. 



REAL ESTATE CONVEYANCES 381 

Real estate owned by partners can be transferred 
only by each partner signing the deed. 

700. Grantee. — The disabilities which attach to 
grantors of a deed do not apply to grantees, and while 
those who dispose of land must be legally competent 
to make a contract, any person may receive a deed to 
real estate. 

701. Warranty Deed. — A warranty deed is one con- 
taining all the covenants or promises necessary to pro- 
tect the grantee in the quiet and full enjoyment of the 
land. Such deeds contain the following covenants or 
declarations in some form : 

1. That the grantor is lawfully seized of the land 
described. 

2. That he has good and lawful rights to convey 
the same. 

3. That the property is free from all incumbrances, 
except those mentioned in the deed. 

1. That the grantee shall be protected in the quiet 
enjoyment of the land. 

5. That the grantor will forever warrant and de- 
fend the premises againt the lawful claims of any 
other person. 

We will now briefly explain the five covenants re- 
ferred to above. 

702. Covenant of Seizen. — By this covenant the 



3815 REAL ESTATE CONVEYANCES 

grantor declares he is well seized of the property, 
meaning that he is the lawful owner of same. Should 
it afterwards be shown that the grantor had not a 
good and perfect title at the time of the transfer, this 
covenant would then be regarded as broken, and an 
action could be commenced at once against him. 

703. Right to Convey. — A person may be lawfully 
seized of land, and yet have no right to convey it to 
another. The right to convey, therefore, means that 
the grantor is not only lawfully seized of the prop- 
erty, but that there exists no legal disability to pre- 
vent him from conveying the title to the grantee. 

704. Free from Incumbrances. — An incumbrance is 
any mortgage, unpaid taxes, judgments, liens, or legal 
claim of any kind held by a third person against the 
land. 

If the land conveyed is subject to a mortgage or 
other incumbrance, this should be fully described in 
the deed, and following such description should be 
written these words : "Which the said party of the sec- 
ond part assumes and agrees to pay." If these words 
or others equivalent thereto are not inserted the 
grantee will not be held personally liable for the pay- 
ment of the incumbrance, although the land will, of 
course, be held for it. 

705. Quiet Enjoyment. — This covenant warrants 



REAL ESTATE CONVEYANCES 383 

that the grantee shall not on account of defective title 
be disturbed in the quiet enjoyment of the premises. 
This covenant is broken whenever some one with a su- 
perior title comes in and legally expels the grantee or 
disturbs his possession of the land described. 

706. Warrant and Defend. — Of all the covenants in 
a deed of conveyance this is the most important, and 
in some states it is made to take the place of all the 
other covenants. By it the grantor binds not only 
himself, but also his heirs, to forever warrant and de- 
fend the grantee, his heirs, and assigns against the 
lawful claims of any person whomsoever. 

This covenant runs with the land, and any person 
owning the property when the covenant is broken may 
at once begin an action against any of the preceding- 
grantors. 

707. Quit=claim Deed. — A quit-claim deed conveys 
whatever interest the grantor has in the land. Noth- 
ing is warranted, nothing is guaranteed, the grantor 
does not even say he has any interest in the land ; he 
only says that he releases and quits-claim to the prem- 
ises described. 

This form of deed is used where the interest of the 
grantor in the property is doubtful, or Avhere one has 
an apparent interest and the deed perfects the title; 
also in case of heirs or tenants in common, when they 



384 REAL ESTATE CONVEYANCES 

wish to dispose of or disclaim any interest in the 
property. The quit-claim deed should contain the re- 
lease of dower, and is practically the same as a war- 
ranty deed with the exception that it contains none 
of the covenants of warranty. 

The warranty deed is, of course, much more de- 
sirable than any other form of conveyance, for, aside 
from the covenants to warrant, defend, etc., it con- 
veys to the grantee any title which may afterwards 
be acquired by the grantor, and this is not true of the 
quit-claim deed, except in a few states. Example. — 
A sold you his farm, giving a warranty deed, but at 
the time of the sale he had not a perfect title. Later 
he secured a clear title, and it passed at once to you, 
on accouut of the warranty deed already given. 

708. Special Warranty Deed. — A special warranty 
deed is one in which the grantor warrants some spe- 
cial or particular thing. It may be a warranty 
against a certain individual, or a certain claim, as dis- 
tinguished from the general warranty of title, incum- 
brance, etc. 

709 The Consideration. — It is customary in making 
a deed to recite the consideration for which it is given, 
and this is usually done by stating the amount of the 
purchase price. Sometimes the consideration is not 
money, or only a part of it is paid in money, and in 



REAL ESTATE CONVEYANCES 385 

such cases the consideration is generally stated as fol- 
lows : "In consideration of one dollar paid to me, the 
receipt of which I acknowledge, and divers other con- 
siderations," or "In consideration of one dollar to me 
paid, the receipt of which I acknowledge, and of the 
love and good will I bear to the said grantee." 

As in all other contracts, the consideration for the 
transfer of real estate may be either good or valuable. 
A good consideration is based upon love, affection, or 
good will between near relatives, while a valuable con- 
sideration is founded upon money or something pos- 
sessing value in a pecuniary sense. 

710. Release of Dower. — It is necessary in nearly all 
the states that the wife join her husband in all deeds 
of transfer in order to give the grantee a perfect title. 
The deed and acknowledgement should name and de- 
scribe her as the wife of the grantor. In some states 
it is also necessary that the deed contain a positive 
statement that the wife releases all her dower and 
homestead rights to the premises described. 

The husband may sell and give possession of the 
land without the knowledge and consent of his wife, 
but the grantee will not receive a perfect title, and 
upon the death of the husband the wife may assert 
her right of dower. 

711. Execution of Deed. — The execution of a deed 

25 



386 REAL ESTATE CONVEYANCES 

has reference to signing, sealing, attesting, and ac- 
knowledging the instrument. It is the duty of the 
seller to prepare the deed in accordance with the terms 
of the agreement and to tender the same properly- 
drawn to the buyer. 

712. Signing. — The deed should be signed in ink by 
the grantor with his own hand, but if, for any reason, 
he can not write his name, it may be signed by a third 
party at the grantor's request and in his presence, the 
grantor simply making his mark. This, when prop- 
erly witnessed, is equivalent to the grantor signing 
personally. 

No. 73. — Signature by Mark, Properly Witnessed 



ffcnfaf 



y^vZhvutri/ 



'Prutsrfe' 




£\)&*t*?6*A x 



713. Sealing. — The seal consists of an impression 
in wax or some tenacious substance, most often a 
piece of gummed paper about the size of a dime, on 



REAL ESTATE CONVEYANCES 387 

which appears the word "seal." It is pasted at the 
right of the signature, and if the deed contains a num- 
ber of signatures, each one must have a seal. These 
seals are supposed to indicate a certain solemnity or 
deliberation on the part of the grantor. In some 
states the word "seal" written with a pen or printed 
will answer, and in many others, especially in the 
West, the seal has been entirely abolished and need 
not be used on any documents. This private seal 
should not be confounded with the official seal of a 
notary public or other officer of the law. 

714. Attestation or Witnessing. — The signing of a 
deed should, in all cases, be witnessed by some compe- 
tent person. The witness should be of sufficient age 
and understanding, but may be a minor. He should 
have no interest whatever in the deed, therefore a wife 
can not act as a witness to a deed wherein her husband 
is grantee, neither can one of the partners become a 
witness to a deed conveying land to the firm. In most 
states two witnesses, and in some states three, are 
required. 

The witness should see the deed signed, but if the 
grantor brings the deed already signed and asks him 
to witness the same, saying it is his signature, the law 
will recognize it as sufficient. 

715. Acknowledgment. — An acknowledgment is 



388 REAL ESTATE CONVEYANCES 

made by the grantor going before a notary public or 
magistrate and acknowledging the deed to be Ms vol- 
untary act. The officer then fills out a certificate on 
the deed stating that the grantor acknowledges the ex- 
ecution of the instrument and to this he affixes his 
official signature and seal. 

Generally a deed is valid as between the grantor 
and grantee without this acknowledgment, but it must 
be acknowledged in order that it may be entitled to 
record. 

716. Delivery. — In order to complete the convey- 
ance, the deed after being properly executed must be 
delivered by the grantor and accepted by the grantee. 
If the grantee should get possession of the deed by 
fraud or force, that would not constitute a delivery, 
and the grantee would not receive a good title. 

A deed may be delivered conditionally, that is, it 
may be placed in the hands of a third person to be de- 
livered to the grantee upon certain conditions. You 
might execute a deed to A and deliver the same to the 
bank, to be handed to Mr. A on the payment of the 
price agreed upon. This is called a deed in escrow 
( es-kro' ) . 

717. Recording. — A complete record of all the land 
located in the county is kept at each county seat, and 



REAL ESTATE CONVEYANCES 380 

deeds as well as other instruments affecting the title 
of land should be recorded. 

This plan of recording gives a certain publicity to 
all transfers, and enables those interested in the 
title of land to investigate the same at any time. 

Every properly executed and acknowledged deed is 
considered as recorded as soon as it is placed in the 
hands of the recorder, and he notes the date, hour, and 
minute on the deed at once. 

This often proves a very important matter, for you 
may hold a deed to certain land given to you by A, but 
if A's creditors attach the land even a minute before 
you have your deed recorded you may lose the 
property. 

718. Land Contracts. — It is often inconvenient for 
the purchaser of land to pay the whole price agreed 
upon in cash, and in that case a land contract is usu- 
ally drawn up and signed by both parties. 

This contract usually contains a promise on the 
part of the seller to furnish a complete abstract of 
title and a warranty deed at a certain specified time, 
on condition that the payments and other stipulations 
of the contract are faithfully carried out by the 
purchaser. 

Sometimes the contract is drawn so as to give the 
buyer an option on the land, that is, he has the right 



390 REAL ESTATE CONVEYANCES 

to either take the property at the time and upon the 
terms agreed to, or forfeit the amount paid and refuse 
the land. If the contract is intended as a buyer's op- 
tion it is only necessary for the seller to sign the 
agreement. 

No. 74. — Warranty Deed, Short Form, with Release of Home- 
stead and Dower 

This indenture, made this 1st day of January, in the year of our 
Lord One Thousand, Nine Hundred Five, between William H. 
Stone and Mary E. Stone, his wife, both of Grand Island, Neb., 
of the first part, and Charles Wilson, of Chicago, 111., of the 
second part, witnesseth, that the said party of the first part, in 
consideration of the sum of Five Thousand Dollars ($5,000) in 
hand paid, the receipt whereof is hereby acknowledged, have 
granted, bargained, and sold, and by these presents, do grant, 
bargain, and sell, unto the said party of the second part, his 
heirs, and assigns, all that piece or parcel of land situated in 
the County of Hall and State of Nebraska, to-wit: (here de- 
scribe carefully the land or premises granted). 

Together with the appurtenances thereunto belonging; and 
all the estate, right, title, interest, claim, and demand of the 
said party of the first part herein. 

And the said William H. Stone and Mary E. Stone, his wife, 
both parties of the first part, hereby expressly waive, release, re- 
linquish, and convey unto the said party of the second part and 
his heirs, executors, administrators, and assigns, all right, title, 
claim, interest, and benefit whatsoever in and to the above 
described premises, and each and every part thereof, which is 
given oy or results from any and all laws of this state pertain- 
ing to the exemption of homesteads. 

And the said William H. Stone and Mary E. Stone, for them- 
selves and their heirs, executors, and administrators, do cove- 
nant, grant, bargain, and agree to and with the said party of the 
second part, and with his heirs and assigns, that the above 
bargained premises in the quiet and peaceable possession of the 
said party of the second part, and his heirs and assigns, the said 



REAL ESTATE CONVEYANCES 391 

party of the first part shall and will warrant and forever 
defend. 

In Witness Whereof, The said parties of the first part have 
hereunto set their hands and seals the day and year first above 
written. 

William H. Stone, [seal] 
Mary E. Stone, [seal] 
Signed, sealed, and delivered in the presence of 
R. B. Doney. 

State of Nebraska, 
Hall County. 

I, James Markel, notary public in and for said county, do 
hereby certify that William H. Stone, who is personally known 
to me as the same person whose name is subscribed to the an- 
nexed deed, appeared before me this day, in person, and ac- 
knowledged that he signed, sealed, and delivered the said instru- 
ment of writing as his free and voluntary act, for the uses and 
purposes therein set forth. 

And the said Mary E. Stone, wife of the said William H. 
Stone, having been examined separate and apart, and out of the 
hearing of her husband, and the contents and meaning of the 
said instrument of writing been by me fully made known and 
explained to her, and she also by me having been fully informed 
of her rights, under the homestead laws of this state, acknowl- 
edged that she had freely and voluntarily executed the same, 
and relinquished her dower to the lands and tenements therein 
mentioned, and also all her rights and advantages under and by 
virtue of any and all laws of this state relating to the exemp- 
tion of homesteads, without compulsion of her said husband, and 
that she does not wish to retract the same. 

Given under my hand and official seal this 2d day of Janu- 
ary, A.D. 1905. 

James Markel, 
[seal] Notary Public. 

My commission expires February 10, 1906. 

No. 75. — Agreement for Warranty Deed 

This agreement, made this 1st day of October in the year 
1902, between A. M. Hargis, of Grand Island, Neb., in the County 
of Hall and State of Nebraska, of the first part, and August 
Vogeler, in the County of Hall and State of Nebraska, of the 



392 REAL ESTATE CONVEYANCES 






second part, witnesseth, that in consideration of the stipula- 
tions herein contained and the payments to be made as is here- 
inafter specified, the first party agrees to sell unto the second 
party the following described real estate in Howard county and 
State of Nebraska, to-wit: Southwest quarter of section twenty- 
eight (28), township thirteen (13), range ten (10), for the sum of 
Four Thousand Dollars, on which the said second party has paid 
the sum of One Thousand Dollars. And the said second party, 
in consideration of the premises, hereby agrees to pay to the said 
first party, at Grand Island, Neb., the following sums of princi- 
pal and interest at the several times named below, interest being 
payable annually at the rate of 6 per cent per anuum, to-wit: 

Oct. 1, 1903, Principal $1,000, Interest $180. 

Oct. 1, 1904, Principal $1,000, Interest $120. 

Oct. 1, 1905, Principal $1,000, Interest $60. 

And it being mutually understood that the above premises 
are sold to said second party for improvment and cultivation, 
the said party further agrees and obligates himself, his heirs, and 
assigns, that all improvements placed upon said premises shall 
remain thereon and shall not be removed or destroyed until final 
payment is made for said land; and further, that he will punctu- 
ally pay said sums of money above specified as each of the same 
becomes due; and that he will regularly and seasonably pay all 
taxes and assessments upon said premises for the current year 
of 1902 and thereafter. 

In case the said party, his legal representatives, or his assigns 
shall pay the several sums of money aforesaid punctually, and 
at the several times above limited, and shall strictly and literally 
perform all and singular his agreements and stipulations afore- 
said, after their true tenor and intent, then the first party will 
furnish the said second party, his heirs, or assigns (upon request 
of the second party at Grand Island, Neb., and the surrender 
of this contract), a good and sufficient Warranty Deed, free and 
clear of all incumbrance, except as against taxes on said lands, 
which said second party has agreed to pay as above set forth, 
and as against any and all acts done and suffered by said pur- 
chaser, or his assigns, subsequent to the date of this contract. 

But in case the second party shall fail to make the payments 
aforesaid, or any of them, punctually and upon the strict terms 
and times above limited, the times of payment being of the 
essence of this contract, and likewise to perform and complete 



REAL ESTATE CONVEYANCES 393 

all and each of his agreements and stipulations aforesaid, strictly 
and literally, without any failure or default, then the party of the 
first part shall have the right to declare this contract null and 
void, and all rights and interests hereby created or then exist- 
ing in favor of the said second party, or derived under this con- 
tract, shall utterly cease and determine, and the premises hereby 
contracted shall revert to and revest in said first party (without 
any declaration of forfeiture or act of reentry, or without any 
other act by said first party to be preformed, and without any 
right of said second party of reclamation or compensation for 
moneys paid or improvements made), as absolutely, fully, and 
perfectly as if this contract had never been made. 

And it is further agreed, on the part of the purchaser, that 
a failure to pay any instalment of principal or interest, or a fail- 
ure to keep any of the covenants and agreements herein made 
by him, shall work a forfeiture of all his rights, and that there- 
upon the first party may, if he so elects (and the purchaser 
hereby waives any notice of such election), treat the purchaser 
as a tenant holding over and at sufferance, and proceed against 
said purchaser by summary action of forcible entry and detainer 
to recover possession. 

And it is further stipulated that no assignment of the prem- 
ises shall be valid unless the same shall be endorsed hereon, or 
permanently attached hereto, and countersigned by the first 
party (for which purpose this contract must be sent to him by 
mail or otherwise), and that no agreements or conditions, or re- 
lations between the second party and his assignees, or any other 
person acquiring title or interest from or through heirs, shall 
preclude the first party from the right to convey the premises 
to said second party or his assigns on the surrender of this agree- 
ment and the payment of the unpaid portion of the purchase 
money which may be due to the first party. 

In Witness of which both parties have signed these pres- 
ents in duplicate on the day and year above written. 

A. M. Hargis. 
August Vogeler. 
Witness: 

W. A. Bon ham. 



394 REAL ESTATE CONVEYANCES 

No. 76. — Deed of Grant and Quit-claim of Property and Mining 
Rights, in Use in California and Other Mining States. 

This Indenture Made the day of in the year of 

our Lord One Thousand Nine Hundred , between (name, resi- 
dence, and occupation of the grantor) the part — of the first 
part, and (name, residence, and occupation of the grantee), the 
part — of the second part, witnesseth, that the said part — of the 

first part, for and in consideration of the sum of dollars, 

of the United States of America, to in hand paid by 

the said part — of the second part, the receipt whereof is hereby 
acknowledged, ha — granted, bargained, sold, remised, released, 
and forever quit-claimed, and by these presents do — grant, bar- 
gain, sell, remise, release, and forever quit-claim unto the said 

part — of the second part, and to heirs and assigns (here 

describe carefully the land or premises granted). 

Together with all the dips, spurs, and angles, and also all the 
metals, ores, gold, and silver-bearing quartz, rock, and earth 
therein; and all the rights, privileges, and franchises thereto in- 
cident, appendant, and appurtenant, or therewith usually had 
and enjoyed; and also all and singular the tenements, heredita- 
ments, and appurtenances thereto belonging, or in any wise ap- 
pertaining, and the rents, issues, and profits thereof; and also 
all the estate right, title, interest, property, possession, claim, 
and demand whatsoever, as well in law as in equity, of the said 
part — of the first part, of, in, or to the said premises, and every 
part and parcel thereof, with the appurtenances. 

To Have and to Hold, all and singular, the said premises, to- 
gether with the appurtenances and privileges thereto incident, 

unto the said part — of the second part, heirs and assigns 

forever. 

In Witness Whereof, The said part — of the first part, ha — 

hereunto set hand — and seal — the day and year first above 

written. 

[Signatures.] [seals.] 
Signed, sealed, and delivered in the presence of 



REAL ESTATE CONVEYANCES 395 

No. 77. — Brief Quit-Claim Deed 

Know all Men by These Presents: That I, C. W. Morris, an 
unmarried man of the County of Pottawattamie and State of Kan- 
sas, in consideration of One Dollar in hand paid, do hereby grant, 
sell, remise, release, and forever quit-claim, unto Floyd Perdew, 
of Grand Island, Hall County, State of Nebraska, the following 
described real estate, situate in the County of Hall and State of 
Nebraska: Lot five (5), located in Block fourteen (14), in the 
original town, now city, of Grand Island. 

Together with all the tenements, hereditaments, and appur- 
tenances to the same belonging, and all the estate, right, title, 
interest, dower, claim, or demand whatsoever, of the said C. W. 
Morris of, in, and to the same, or any part thereof. 

To Have and to Hold the above described premises, with the 
appurtenances, unto the said Floyd Perdew and to his heirs and 
assigns forever. 

Signed this 10th day of February, A.D. Nineteen Hundred 
Two. 

C. W. Morris, [seal.] 
In presence of Floyd Perdew. [seal] 

Otto Hartwkh. 

The State of Kansas. ) 
Pottawattamie County. ) 

On this 12th day of February, A. D. Nineteen Hundred Two, 
before me, a notary public, in and for said county, personally 
came the above named C. W. Morris, an unmarried man, who is 
personally known to me to be the identical person whose name 
is affixed to the above deed as grantor, and he acknowledged the 
instrument to be his voluntary act and deed. 

Witness my hand and notarial seal the date aforesaid. 

S. C. Grossnickle, 
Tseal.] Notary Public. 

My commission expires June 12, 1906. 

No. 78. — Contract for Sale of -Land, with Penal Obligation 

Articles of Agreement Made and concluded this day 

of , A.D. 19 — , between of the County of and 

State of , of the first part, and of the County of ■ 

and State of ■ of the second part, as follows: 

The said (name of the party of the first' part), for the con- 



396 REAL ESTATE CONVEYANCES 

sideration hereinafter mentioned, does for himself and for his 
heirs, covenant and agree with the said (name of the party of 
the second part) and his heirs and assigns, by these pres- 
ents, that he, the said party of the first part, shall and will, on 

or before the day of A.D. 19 — , at the proper costs and 

charges of the said party of the first part (or of the second part, 
if that is agreed), his heirs, and assigns, by good and lawful 
deed, well and sufficiently grant, convey, and assure unto the 
said party of the second part, his heirs and assigns, in fee simple, 
clear of all incumbrances, all that certain tract or parcel of land 

lying, being, and situated in the County of , State of , 

as follows, to-wit: (here describe carefully the land or premises 
granted). 

In Consideration Whereof, The said (here the name of the 
party of the second part), for himself and his heirs, does cov- 
enant and agree with the said party of the first part, and with 
his heirs and assigns, by these presents, that he, the said party 
of the second part, and his heirs or some of them, shall and will, 
on the execution and delivery of the said deed or deeds as afore- 
said, well and truly pay, or cause to be paid unto the said party 

of the first part, or his heirs and assigns, the sum of 

dollars, in the manner following, to-wit: (set forth the terms 
and times of payment as agreed on). And upon (set forth the 
time agreed on) the said party of the first part shall give to 
the said party of the second part possession of the aforesaid 
premises. 

And for the true performance of all and every the covenants 
and agreements aforesaid, each of the said parties bindeth him- 
self, his heirs, executors, and administrators unto the other, 
his executors, administrators, and assigns, in the penal sum 
of dollars. 

In Witness Whereof, The said parties have hereunto set 
their hands and seals the day and year first above written. 

[Signatures.] [seals.] 

No. 79. — Power of Attorney to Sell Land 

Know All Men by These Presents: That I, the undersigned 

(name of the selling party), of the town (or city) of , 

County of , and State of , have this day made, con- 
stituted, and appointed, and do by these presents make, constitute, 
and appoint (name of attorney) of the town (or city) of — 






REAL ESTATE CONVEYANCES 39. 

in the County of , and State of , my true and lawful 

attorney, for me and in my name to sell and dispose of, abso- 
lutely, in fee-simple, the following described lot, tract, or parcel 
of land, or any part thereof, situated, lying, and being in the 
County of and State aforesaid, to-wit: (here describe care- 
fully the land or premises granted), for such price or sum of 
money, and to such person or persons as he shall think fit and 
convenient; and also for me and in my name, and as my act 
and deed, to sign, execute, acknowledge, and deliver such deed 
or deeds and conveyance or conveyances, for the absolute sale 
and disposal thereof, or of any part thereof, with such cause or 
clauses, covenant or covenants, and agreement or agreements, to 
be therein contained, as my said attorney shall think fit and 
expedient; hereby ratifying and confirming all such deeds, con- 
veyances, bargains, and sales which shall at any time hereafter 
be made by said attorney touching or concerning the premises. 
In Testimony Whereof, I have set my hand and seal, this 

day of , A.D. 19—. 

[Signature.] [seal.] 
State of 



County of 

Be it Remembered That on this day of , A.D. 19 — . 

before the undersigned, a notary public (or other magistrate) 
within and for the County of and the state , per- 
sonally came (the name of the principal), who is personally 
known to me to be the same person whose name is subscribed 
to the foregoing instrument of writing, and acknowledged the 
same to be his free act and deed, for the purposes therein 
mentioned. 

In Witness Whereof I have hereunto set my hand and af- 
fixed my official seal, at my office in the day and year first 

above written. 

[Signature.] [seal.] 

IX THE RECORDER'S OFFICE 



ss. 



State of 

County of 

I, , Clerk of the Circuit Court, and ex-officio recorder 

of said county (or whoever else is the recording officer), do 
hereby certify that the within instrument of writing was, on 
the day of , A.D. 19 — , duly filed for record in this 



398 



REAL ESTATE CONVEYANCES 



office, and is recorded in the records of this office in Book 

at page . 

In Witness Whereof I have hereunto set my hand and af- 
fixed the seal of said court, at this day of , 

A.D. 19—. 



Per 



Recorder. 



Deputy. 



REAL ESTATE CONVEYANCES 399 

REAL ESTATE CONVEYANCES 

REVIEW QUESTIONS 

What is a deed of conveyance? 

What are the parties called? 

Who may be the grantor of a deed? 

Who may be the grantee? 

Define a warranty deed. 

Define the covenant of seizen. 

What is meant by right to convey? 

What is meant by incumbrance? 

What is a quit-claim deed? 

Define special warranty deed. 

What is the consideration of a deed 9 

What is meant by release of dower? 

How is a deed signed by one who can not write? 

What is meant by sealing? 

What is meant by attesting a signature? 

Who may be a witness to the signing of a deed? 

What is an acknowledgment? 

Who is authorized to take an acknowledgement? 

What constitutes delivery? 

What is meant by recording a deed? 

Is it necessary to have a deed recorded? 

What is a land contract? 



400 REAL ESTATE MORTGAGES 



CHAPTER XXXII 

REAL ESTATE MORTGAGES 

719. Definition. — A real estate mortgage is simply a 
deed of conveyance which transfers to the person men- 
tioned therein the property described. This transfer 
is made as full and complete as though it were an out- 
right sale, but an additional clause is inserted called 
the defeasance clause. 

720. Defeasance Clause. — A mortgage is given to se- 
cure the payment of a debt, and the defeasance clause 
which is inserted in the instrument states that the 
transfer of the title shall become null and void pro 
vided the sum mentioned therein shall be paid by the 
mortgagor at the time specified; but in case it is not 
paid the transfer shall remain in full force. The per- 
son giving the mortgage is called the mortgagor 
(mor'-gaj-or) and the one receiving it is called the 
mortgagee (mor'ga-je). 

721. Equity of Redemption. — Under the common 
law, if the mortgagor did not pay the debt on the exact 
date of maturity the legal title to the land passed at 
once to the mortgagee, and the mortgagor had no 
further rights in the matter, notwithstanding the debt 



REAL ESTATE MORTGAGES 401 

might be only a fractional part of the true value of 
the land. 

The courts of equity held that the rule was too 
harsh, that it was in the nature of a penalty and 
worked a hardship on the mortgagor ; therefore he was 
given the privilege of redeeming the land within a 
reasonable time after the debt had become due by pay- 
ing the principal and interest. This right of redemp- 
tion is now recognized and protected by all courts. 

722. Can Not Lose Right of Redemption. — This right 
to redeem property after the debt becomes due is con- 
sidered so important by the law that the mortgagor 
can not by any form of contract deprive himself of 
this privilege. Therefore, if the mortgagor agrees in 
the plainest and most positive terms that he shall have 
no right to redeem the land after default of payment, 
and that the mortgagee may have an absolute title to 
same, if the debt is not paid at maturity, still, the law 
will allow him his equity of redemption and set the 
agreement aside. 

723. Insurance Clause. — It is customary to insert 
an insurance clause in real estate mortgages, which 
is an agreement on the part of the mortgagor to keep 
all buildings insured for a specified amount for the 
security of the mortgagee. If the mortgagor does not 
keep the premises insured according to contract, the 

26 



402 REAL ESTATE MORTGAGES 

mortgagee may do so and charge the same to the 
mortgagor. 

724. An Interest May be Mortgaged. — It is not nec- 
essary that a person should hold land in fee simple 
in order that he may mortgage the same, but he has a 
right to mortgage any transferable interest he may 
have in the property. It may be a life interest, undi- 
vided interest, an interest for a certain number of 
years, etc. 

If a mortgagor has no interest in the land at the 
time of executing the instrument, but acquires a title 
later, it is generally held that the mortgage becomes 
valid as soon as the title passes to the mortgagor. 

725. Deed Intended as Mortgage. — In case a deed is 
given as security for the payment of a debt, the law 
will regard it as a mortgage, and even though the 
terms of the deed are intended to grant an absolute 
title, the courts will treat it in every way as a 
mortgage. 

726. Execution. — The manner of executing a mort- 
gage is exactly the same as is required for a deed. It 
must be signed, sealed, witnessed, acknowledged, and 
delivered. 

727. Recording a Mortgage. — Every mortgage should 
be recorded promptly as soon as it is executed. The 
mortgage would be binding between the original par- 






REAL ESTATE MORTGAGES 403 

ties without record, but it would be void as to subse- 
quent bona fide purchasers or mortgagees. 

The recorder's books are usually kept in a fireproof 
vault, and in case the original mortgage is lost or de- 
stroyed the owner would suffer no inconvenience or 
loss provided it was recorded. 

728. Mortgagor's Wife. — The mortgagor's wife should 
also sign the mortgage, even though the title be held 
in the husband's name. The object of this is to release 
her dower interest, and in many states a mortgage on 
the homestead would be void without the signature of 
the wife. 

729. Purchase Money Mortgage. — It is not abso- 
lutely necessary for the wife to join the husband in a 
mortgage given for the purchase money. Example. — 
Mr. A buys a farm for $3,000, paying cash $1,000 and 
giving a mortgage for the balance of $2,000. It would 
not be necessary for Mr. A's wife to sign this mort- 
gage, although it would be better to have her do so. 

730. Sale of Mortgaged Property. — The owner of 
mortgaged real estate is not prevented on that ac- 
count from selling or disposing of the same, for he 
has a perfect right to sell it subject to the mortgage. 

In giving a deed the mortgagor should be careful 
to describe the mortgage debt and follow it by these 
words, "Which the purchaser assumes and agrees to 



404 REAL ESTATE MORTGAGES 

pay." In that case if the property should be fore- 
closed and fail to sell for enough to pay the mortgage, 
the purchaser would be held for the balance ; but if it 
is not desired to bind the purchaser for the deficiency 
in event of foreclosure, the deed should simply state 
that the purchaser buys "subject to the mortgage." 

731. Second Mortgage. — A mortgagor may offer his 
land as security for the payment of his debts as often 
as he can find those who will accept it, but of course 
each new mortgage should state the amount of en- 
cumbrance already against the property. The mort- 
gages would have preference in their regular order. 

732. Possession of Premises. — It is now generally 
understood that the mortgagee has no estate in the 
land, but only a lien on same for the amount due him. 
The mortgagor is therefore, in most of the states, en- 
titled to possession of the property until the same has 
been sold according to law for the payment of the 
debt. 

733. Assignment of Mortgage. — A mortgage is usu- 
ally given as security for the payment of a negotiable 
note, and if the note is endorsed and transferred to- 
gether with the mortgage, the sale will be valid. Many 
prefer, however, to take a regular deed of assignment 
(see form at end of this chapter) . The validity of an 



REAL ESTATE MORTGAGES 105 

assignment of a mortgage is governed by the laws of 
the state where the land is located. 

734. May Sue on Notes Alone. — The mortgagee may, 
upon default of payment, begin a suit of foreclosure 
at once ; or he may, if he prefers, sue the mortgagor on 
the notes alone and get a personal judgment against 
him. Sometimes the last named method is prefer- 
able, especially if the land mortgaged has but little 
value and the mortgagee is a person who is financially 
responsible for the debt. 

735. Discharge of Mortgage. — A mortgage is dis- 
charged by the mortgagee, or his authorized agent, or 
his assigns acknowledging the payment of same upon 
the margin of the page where it is officially recorded. 
This acknowledgment must be witnessed by the reg- 
ister of deeds or his deputy, and it will then have the 
same effect as a deed of release. 

If it is not convenient to discharge the mortgage in 
this manner, a regular deed of release should be ex- 
ecuted, acknowledged, and recorded (see form at the 
end of this chapter). 

736. Refusal to Discharge. — The statutes of many 
states fix a severe penalty for refusal to discharge a 
mortgage after the same has been fully paid. 

737. Foreclosure. — In most states if a mortgage is 
not paid at maturity the property may be advertised 



406 REAL ESTATE MORTGAGES 

and sold according to law, to the highest bidder. After 
paying costs, together with the mortgage and interest 
on same, the balance is turned over to the mortgagor. 
But in case the property does not sell for enough to 
pay the mortgage and costs of foreclosure, the mort- 
gagee will, in most of the states, be allowed a judg- 
ment against the mortgagor for the deficiency. 

738. Abstract of Title. — Any one selling or mort- 
gaging land is generally required to give an abstract 
of title so the mortgagee or purchaser may satisfy 
himself as to the title, without being compelled to ex- 
amine all the deeds, mortgages, and other instruments 
of record affecting the title to the land. 

This abstract of title consists of a brief summary 
of the important parts of all instruments affecting the 
title, or constituting an incumbrance on the land, 
from the first grant down to the date of the abstract. 

739. Deed of Trust. — A trust deed is an instrument 
given to a third party called a trustee, with the agree- 
ment that the property is to be held as security for 
the payment of certain debts. In practical effect it is 
about the same as a mortgage, and any one holdiug 
negotiable notes secured by a trust deed may sell the 
notes, and the purchaser will acquire all the rights 
possessed by the seller. 



REAL ESTATE MORTGAGES 407 

No. 80. — Real Estate Mortgage 

Know All Men by These Presents: That I, D. A. Trivel- 
piece, in consideration of Five Thousand Dollars, in hand paid, 
do hereby grant, bargain, sell, and convey unto John W. Hargis 
the following described real estate, situate in the County of 
Douglas, State of Nebraska, to-wit: 

Lot seven (7) in Block fourteen (14) original town, now city, 
of Omaha, together with all the appurtenances thereunto belong- 
ing; and all the rents, issues, and profits arising therefrom after 
default herein, and I do hereby covenant with the said John W. 
Hargis, his heirs, and assigns, that I am lawfully seized of said 
premises, that they are free from incumbrance, and I do hereby 
covenant to warrant and defend the said premises against the 
lawful claims of all persons whomsoever. 

Provided, always, and these presents are upon this condition: 
That, whereas, said D. A. Trivelpiece has executed and delivered 
to said John W. Hargis his one promissory note, of which the 
following is a copy: 

$5,000. Grand Island, Neb., January 1, 1901. 

One year after date for value received I promise to pay John 
W. Hargis or order Five thousand and no/100 Dollars, at the 
office of the Grand Island Banking Co., Grand Island, Neb., with 
interest at 10 per cent per annum from date. The makers and 
endorsers severally waive presentment for payment, protest, 
notice of protest, and notice of nonpayment of this note. 

D. A. Trivelpiece. 
P. O. address, Grand Island, Neb. 
Due January 1, 1902. 

Now if the said D. A. Trivelpiece shall well and truly pay, or 
cause to be paid, the sum of money in said note mentioned, with 
the interest thereon according to the tenor and effect of said note, 
then these presents shall be null and void. But if said sum of 
money, or any part thereof, or any interest thereon, is not paid 
when the same is due, or if' the taxes and assessments of every 
nature which are assessed and levied against said premises are 
not paid at the time when the same are by law made due and 
payable, then the whole of said sum and interest to date of such 
default shall immediately become due and payable, and this mort- 
gage may be foreclosed forthwith, and the mortgagee, his heirs, 



408 REAL ESTATE MORTGAGES 

or assigns, shall have the right to have a receiver appointed at 
once, who shall take possession of, control, and preserve the 
mortgaged premises, and collect the rents, issues, and profits 
thereof for the payment of the mortgage debt. 
Signed this 1st day of January, A.D. 1901. 

D. A. Trivelpiece. 
In presence of 

Edward Joehnck. 
C. F. Hasse. 

State of Nebraska, > 
Hall County. . ) 

On this 1st day of January, A.D. 1901, before me, Chas. L. 
Lloyd, a notary public in and for said county, personally came 
the above named D. A. Trivelpiece, who is personally known to 
me to be the identical person whose name is affixed to the above 
instrument as grantor, and he acknowledged the instrument to 
be his voluntary act and deed. 

Witness my hand and official seal the date aforesaid. 

Chas. L. Lloyd, 
[seal.] Notary Public. 

My commission expires February 6, 1904. 

No. 81. — Deed of Assignment 

Know All Men by These Presents: That I, John W. Hargis, 
of the County of Christian, and State of Illinois, the mortgagee 
named in a certain mortgage deed, given by D. A. Trivelpiece, 
of the County of Hall, and State of Nebraska, to said John W. 
Hargis to secure the payment of Five Thousand Dollars, dated 1 
January 1, 1901, and recorded in the records of the office of 
Douglas County, Nebraska, in book R of mortgages, page 256, in 
consideration of the sum of Five Thousand Dollars to me paid 
by Leroy Frazell, of Hall County, Nebraska, the receipt whereof 
is hereby acknowledged, do hereby sell, assign, transfer, set 
over, and convey unto the said Leroy Frazell and his heirs and 
assigns said mortgage deed, the real estate thereby conveyed, 
and the promissory note, debt, and claim thereby secured, and 
the covenants therein contained. 

To Have and to Hold The same to him, the said Leroy 
Frazell and his heirs and assigns, to his and their use forever, 



REAL ESTATE MORTGAGES 409 

subject, however, to the conditions therein contained and to re- 
demption according to law. 

In Witness Whereof, The said party of the first part has 
hereunto set his hand and seal this the tenth day of July, 1901. 

John W. Hargis. 
Witness: Henry O. Minnis. 

State of Illinois, 
Christian County. 

On this, the 10th day of July, 1902, before me, a notary 
public in and for said county, personally came John W. Hargis, 
to me known to be the identical person whose name is fixed to 
the above release as maker, and acknowledged the execution of 
same to be his voluntary act and deed. 

Witness my hand and seal the day and year above written. 

Henry 0. Minnis. 
[seal.] Notary Public. 

No. 82. — Release on Real Estate Mortgage 

Know All Men by These Presents: That I, Leroy Frazell, of 
the County of Hall, and State of Nebraska, for and in consider- 
ation of one dollar, and other good and valuable consideration, 
the receipt whereof is hereby acknowledged, do remise, convey, 
release, and quit-claim unto D. A. Trivelpiece, of the County of 
Hall, and State of Nebraska, all the right, title, interest, claim, or 
demand whatsoever I may have acquired in, through, or by a 
certain mortgage deed bearing date of January 1, 1901, and re- 
corded in recorder's office of Douglas County, State of Nebraska, 
in book R of mortgages, page 256, to the premises therein de- 
scribed as follows, to-wit: Lot seven in Block fourteen, original 
town, now city, of Omaha. 

Together with all appurtenances and privileges thereunto be- 
longing or appertaining. 

Witness my hand and seal this tenth day of January, 1902. 

Leroy Frazell. 
Witness: Olive Keene. 

State of Nebraska, | 
Hall County. j 
On this, the 10th day of January, 1902, before me, a notary 
public in and for said county, personally came Leroy Frazell, 
to me known to be the identical person whose name is fixed to the 



410 REAL ESTATE MORTGAGES 

above release as maker, and acknowledged the execution of same 
to be his voluntary act and deed. 

Witness my hand and seal the day and year above written. 

Arthur Poore, 
[seal.] Notary Public. 



REAL ESTATE MORTGAGES 

REVIEW QUESTIONS 

What is a real estate mortgage? 

How does it differ from a deed of conveyance? 

What is the defeasance clause? 

What are the parties to a mortgage called? 

What is equity of redemption? 

Can a person sign away his right of redemption? 

What is the insurance clause? 

Who pays for the insurance? 

May a person mortgage his interest if he does not 
own the land in fee simple? 

If a person give a mortgage on land in which he 
has no interest, will the mortgage become valid if he 
afterwards acquires a title to the property? 

If a deed is given as security for a debt, will the 
law regard it as a mortgage? 

What is meant by the execution of a mortgage? 

Must it be recorded? 

Why is it necessary to record it? 

Is it void if not recorded? 



REAL ESTATE MORTGAGES 411 

Must husband and wife both sign it? 

Is it necessary for both to sign a purchase money 
mortgage? 

May mortgaged property be sold? 

May land be mortgaged when there is already a 
mortgage on same? 

How is a mortgage discharged? 

If a mortgage is paid, must the holder discharge 
the same? 

Who has possession of the land mortgaged? 

May a mortgage be sold ? 

May the holder of notes secured by mortgage sue 
on the notes alone if he prefers? 

What is meant by foreclosure of mortgage? 

What is an abstract of title? 

What is a trust deed? 



412 LANDLORD AND TENANT 



CHAPTER XXXIII 

LANDLORD AND TENANT 

740. Definition. — This chapter deals with the rela- 
tions which exist between a person who owns or con- 
trols land, called the landlord, and the one who rents 
the land from him, called the tenant. 

741. The Parties. — Any one who is competent to 
make ordinary contracts may be a party to the lease 
of land. 

The landlord or owner is called the lessor (les'-or) 
and the tenant or person to whom the property is 
leased is called the lessee ( le -se' ) . 

742. What May be Leased. — While land and the 
buildings thereon are by far the most frequent sub- 
jects of lease, there are other things capable of being 
leased, such as water rights, mining rights, oil rights, 
wharfage, turpentine or maple trees, etc. 

743. A Lease.- — The contract by which one person 
rents land, buildings, etc., of another is called a lease. 
It may be verbal if for one year or less, but accord- 
ing to the law of most of the states, if the time for 
which the lease is to run exceeds one year, it must be 
written. 



LANDLORD AND TENANT 413 

The lease should be made in duplicate and each 
copy be signed by both the landlord and the tenant. 

744. Term of Lease. — The term of lease has refer- 
ence to the length of time for which the property is 
rented. This is usually a matter of agreement be- 
tween the parties, although a few of the states limit 
the term for which a lease may be drawn. In the 
state of New York no lease on agricultural land is 
valid if drawn for more than twelve years. 

In the large cities lots are often leased for one 
hundred years or more, the term of ninety-niue years, 
however, being the customary length of a long-time 
lease. All long time leases should be executed with 
the same formality and recorded the same as a deed 
of conveyance. 

A lease for life is sometimes made, which holds 
good during the life of the lessee, who is called a 
Tenant for Life. 

745. Rent. — This has reference to the price the ten- 
ant is to pay the landlord for the use of the prop- 
erty. It may be a stipulated sum payable weekly, 
monthly, yearly, etc. ; it may be a gross sum paid in 
advance for the whole term of the lease ; it may be a 
share of the crop; or it may be paid in labor or 
services. 

746. If Building be Destroyed. — Some of the states 



414 LANDLORD AND TENANT 

have statutes providing that in case a leased build- 
ing is destroyed or rendered uninhabitable by fire or 
other unavoidable accident, the tenant shall not be 
required to pay rent during the time he is unable 
to use and occupy the building. 

In states where this matter is not regulated by the 
statutes the tenant will be held for the payment of 
the rent during the full term of the lease, even in case 
the building is totally destroyed, unless it is other- 
wise stipulated in the lease. All well drawn leases 
contain clauses covering these points fully. 

747. Repairs. — Unless it is so agreed in the lease, 
the landlord will not be legally bound to make any 
repairs whatever on the building. If the chimneys 
blow off, the windows get broken, and the doors fall 
from their hinges, or the house is wrecked by a storm, 
still the tenant must pay his rent and can not compel 
the landlord to repair the building. It is generally 
held, however, in case the house becomes uninhabit- 
able by its own fault, such as general decay, crumbling 
walls, etc., that the tenant may abandon the same and 
declare the lease at an end, without any special agree- 
ment touching this point. The tenant can not do this, 
however, when the defect in the building is such that 
a reasonable investigation would have brought it to 
his notice when he leased the building. Repairs 



LANDLORD AND TENANT 415 

which are needed to preserve the house from injury, 
such as damaged roof, broken windows, or skylights, 
etc., must be made by the tenant, although he is not 
bound to make general repairs. 

748. When Tenant Must Rebuild. — If the lease states 
that the tenant "covenants to return and redeliver the 
house at the end of the. term in good order and con- 
dition, reasonable wear and tear only excepted," the 
tenant would then be bound to rebuild the house in 
case it were destroyed in any manner whatever. 

To relieve the tenant of this unjust responsibility 
the covenant may be made to read as follows : "The 
said tenant covenants to return and redeliver the 
house at the end of the term in good order and condi- 
tion, reasonable wear and tear, damage or loss by fire 
or other unavoidable accidents excepted." 

749. Assignment of Lease. — A tenant has the right 
to assign his lease, whether it be verbal or written, to 
another person; or, if he prefers, he may sublet any 
portion of the property to a third party, provided 
there be no covenant in the lease to the contrary. The 
person renting property from a tenant is called a 
subtenant. 

In subletting the property or assigning the lease, 
the tenant can not release himself from his obliga- 
tions to the landlord for the payment of the rent; 



416 LANDLORD AND TENANT 

neither is the landlord obliged to allow the subtenant 
to occupy the premises if it is to be used for any pur- 
pose foreign to, and inconsistent with, the original 
lease. 

750. Clause Against Subletting. — Landlords gener- 
ally prefer to choose their own tenants, and well 
drawn leases usually contain a clause or covenant 
stating that no part of the premises shall be sublet 
and no assignment of the lease shall be valid. Not- 
withstanding this agreement, it is generally held that 
the tenant may sublet the premises or assign the lease 
without forfeiting the property. He will of course be 
held personally responsible for the rent, and will also 
be liable for any damages sustained by the landlord 
on account of the change. 

To the above named covenant should be added an- 
other one stipulating that the contract shall become 
void in case any part of the property be sublet or the 
lease be assigned. In that event the landlord may 
enter the premises and turn out the tenant in case 
the covenant is broken, or, if he prefers, he may hold 
the tenant for the rent and any damages he has sus- 
stained, but he can not do both. 

751. Sale of Leased Property. — When a lease is given 
on unencumbered property the tenant acquires 
thereby a certain estate or right in it which he can 



LANDLORD AND TENANT 417 

not be deprived of. The owner may sell or mortgage 
the premises at his pleasure, but the buyer or mort- 
gagee will take it subject to the tenant's rights, and 
he may retain possession until the expiration of his 
lease. 

752. Lease of Mortgaged Property. — If the premises 
be mortgaged at the time the lease is drawn, the 
mortgagee has certain rights over the tenant, and in 
case the property is sold under foreclosure to satisfy 
the mortgage, the lease will then become void and 
the purchaser may take immediate possession. 

If this were otherwise, a dishonest landlord could 
execute a long time lease just before the land was 
sold, and by making the rent very low, could collect 
several years in advance. This would, of course, be a 
«reat injustice to the mortgagee. 

753. Fixtures. — Any chattel or personal property 
which is so fixed or fastened to land or buildings that 
it can not be removed without material injury to itself 
or the real estate is called a fixture. 

When a tenant has made improvements of this 
character on leased property it is very important to 
know whether or not he has the right to remove the 
same. 

754. What May be Removed. — It is impossible to 
formulate a rule which will hold in every case, as much 

27 



418 LANDLORD AND TENANT 

depends upon the peculiar circumstances and the in- 
tention of the parties. 

Among the things which have been held as remov- 
able are the following articles: gas fixtures, pumps, 
counters, shelving, stables on blocks, and furnaces. 

755. Things Not Removable. — Much sometimes de- 
pends upon the manner in which the article is attached 
to the real estate. If it is nailed this may indicate an 
intention of making it a permanent fixture, while if 
fastened on with screws it may evince an intention to 
remove the same. 

Among the articles held as not removable are the 
following : barn fastened to the ground, trees, plants 
and hedges not belonging to a gardener, glass win- 
dows, locks and keys. 

756. A Tenant's Fixtures. — When a tenant makes 
permanent improvements without the knowledge or 
consent of the landlord, they can not as a rule be taken 
away, but the law is much more favorable to a tenant 
regarding the removal of fixtures than it is to the 
grantor of a deed. 

It has been held that improvements made by a ten- 
ant may be taken away in case the premises are left in 
as good order as they would have been had he not re- 
moved them. 

A tenant for a certain term must remove his fix- 



LANDLORD AND TENANT 419 

tures before his lease expires, for otherwise they be- 
come the property of the landlord. 

In case the tenancy comes to an end suddenly with- 
out fault of the tenant he will have a reasonable time 
in which to remove his property. 

757. Waste. — This has reference to any important 
and permanent injury done to the property, such as 
the unnecessary destruction of growing timber, re- 
moving fences, taking out doors, windows, etc., from 
buildings, or in fact doing anything to seriously in- 
jure the property. 

In case a tenant is guilty of waste, the landlord is 
entitled to damages or may bring an action to restrain 
him from further destruction of the property. 

758. Right and Duties of Tenant. — The tenant of a 
room or suite of rooms is entitled, without express 
agreement, to the use and free access to all appur- 
tenances and accommodations which naturally go 
with same, such as use of front door, hall ways, win- 
dows, lavatory, pump, etc. 

The rent must be paid according to agreement, and 
the property must be redelivered to the landlord ac- 
cording to lease. 

The tenant is not liable for the payment of taxes or 
insurance unless it is stipulated in the agreement. 

If a lease to a farm be terminated by any event 



420 LANDLORD AND TENANT 

which the tenant could neither foresee nor control, he 
is entitled to the crop which he planted before the 
lease became void. 

To avoid the possibility of a misunderstanding, it 
is always best to include in the lease everything of 
any importance which is agreed upon. 

759. Notice to Quit. — Under certain circumstances 
a tenant is entitled to a notice to quit the premises 
before he can be legally ejected. 

If the property has been rented for a specified time 
the tenant is not entitled to notice for the landlord 
has a right to possession immediately on the expira- 
tion of the lease. But if he holds over and occupies the 
premises by consent of the landlord, he becomes a 
tenant at will, that is, a tenant at the will of the land- 
lord. A tenant of this class can not leave, neither can 
he be turned out, without proper notice. 

This notice must be written and must specify the 
particular day when the tenant is to quit. 

The time when such notice should be given is very 
important. The statutes on this point are not uni- 
form, but usually the tenant is entitled to one month's 
notice if he pays the rent monthly ; one week's notice 
if he pays weekly, etc. 

The notice must request him to leave on the day the 
rent is due. 



LANDLORD AND TENANT 421 

If a tenant fails to pay his rent then, it is neces- 
sary to notify him only a short time before you expect 
him to get out, usually fourteen days, but this notice 
must specify the exact day the tenant is to quit. 

A tenant may give notice of his intention to quit, 
and it is generally subject to the same rules as men- 
tioned above. 

760. Eviction of Tenant. — Actual eviction has to do 
with the forcible expulsion of the tenant from the 
premises by the owner of the property or his agent. 

Constructive eviction has reference to the wilful 
disturbance of the tenant's possession by making the 
house uninhabitable. For example, if a tenant refuses 
to pay rent or get out the landlord may remove all 
doors and windows, or otherwise make the place un- 
tenable, and thus compel the occupant to remove. 
This would be constructive eviction. 

No. 83. — Ordinary Lease with Provision for Abatement of Rent 

This Indenture, Made this 3d day of January, 1902, between 
Harry Sparling, party of the first part, and Clyde Sampson, party 
of the second part, 

Witnesseth, That the said party of the first part, in con- 
sideration of the covenants of the said party of the second part, 
hereinafter set forth, do by these presents lease to the said party 
of the second part the following described property, to-wit: 

The two-story brick building located on Lot eight (8), Block 
twenty-nine (29), original town, now city, of Grand Island, Hall 
County, Nebraska, the same to be used by the said Clyde Samp- 
son as a warehouse and store-room for the purpose of conducting 
a wholesale and retail Dry Goods Store. 



422 LANDLORD AND TENANT 

To Have and to Hold The same to the said party of second 
part from the 1st day of February, 1902, to the 1st day of Feb- 
ruary, 1903. And the said party of the second part, in consider- 
ation of the leasing of the premises as above set forth, covenants 
and agrees with the party of the first part to pay to the said party 
of the first part, as rent for the same, the sum of Six Hundred and 
no/100 Dollars, payable as follows, to-wit: Fifty dollars ($50) 
on the 1st day of February, 1902, and Fifty Dollars ($50) on the 
first day of each month thereafter during the life of this lease. 

The said party of the second part further covenants with the 
said party of the first part that at the expiration of the time 
mentioned in this lease peaceable possession of the said premises 
shall be given to the said party of the first part, in as good condi- 
tion as they now are, the usual wear, inevitable accidents, and loss 
by fire excepted; and that upon the non-payment of the whole or 
any portion of the said rent at the time when the same is above 
promised to be paid, the said party of the first part may, at his 
election, either distrain for said rent due, or declare this lease 
at an end, and recover possession as if the same was held by 
forcible detainer; the said party of the second part hereby waiv- 
ing any notice of such election or any demand for the posses- 
sion of said premises. 

And it is Further Covenanted and Agreed Between the 
parties aforesaid that in case the premises or any part thereof 
shall, during said term, be destroyed or damaged by fire or other 
unavoidable casualty, so that the same shall be thereby rendered 
unfit for use and habitation, then, and in such case, the rent 
hereinbefore reserved, or a just and proportionate part thereof, 
according to the nature and extent of the injuries sustained, 
shall be suspended or abated until the said premises shall have 
been put in proper condition for use and habitation by the said 
lessor, or these presents shall thereby be determined and ended 
at the election of the said lessor or his legal representative. 

The covenants herein shall extend to and be binding upon 
the heirs, executors, and administrators of the parties to this 
lease. 

Witness the hands and seals of the parties aforesaid. 

Harry Sparling [seal.] 
Clyde Sampson, [seal.] 
In presence of 

Annetta Erickson. 



LANDLORD AND TENANT 423 

State of Nebraska, 



, ss. 
Hall County. J 

On this 2d day of January, A.D. 1902, before me, a notary 
public duly commissioned and qualified for and residing in said 
county, personally came Harry Sparling, the said lessor, and 
Clyde Sampson, the said lessee, to me known to be the identical 
persons whose names are affixed to the foregoing instrument as 
lessor and lessee, and acknowledged the said instrument to be 
their voluntary act and deed. 

Witness my hand and seal the day and year last above written. 

Lloyd Yocum. 
[seal.] Notary Public. 

My commission expires March 4, 1906. 

No. 84. — Clause for Tenant to Pay Taxes 
(May be inserted in lease if desired.) 

It is further agreed that the said party of the second part, 
his executors, administrators, or assigns shall and will, at their 
own proper costs and charges, bear, pay, and discharge all such 
taxes, duties, water rents, and assessments whatsoever as shall or 
may, during the said term hereby granted, be charged, assessed, 
or imposed upon the said demised premises. 

No. 85. — Clause Against Assignment. 
(May be inserted in lease if desired.) 

And it is further agreed that the said party of the second 
part shall not assign or lease, nor underlet the whole or any part 
of the premises herein described to any person or persons, with- 
out the written consent of the said party of the first part, and in 
case the said party of the second part assign this lease or sublets 
the premises in violation of this agreement the party of the first 
part may at his election declare this lease at an end. 

No. 86. — Form for Surety. to Sign and Attach the Lease 

In consideration of the letting of the premises above described, 
and for the sum of one dollar, I do hereby become surety for the 
punctual payment of the rent and performance of the covenants 
in the above written agreement mentioned, to be paid and per- 
formed by said Clyde Sampson, and if any default shall be made 
therein I do hereby promise and agree to pay unto said Harry 



424 LANDLORD AND TENANT 

Sparling such sum or sums of money as will be sufficient to make 
up such deficiency, and fully satisfy the conditions of said agree- 
ment without requiring any notice of nonpayment or proof of de- 
mand being made. Given under my hand and seal this second 
day of January, 1902. 

Albert Imm. 
Witness: Alma Rewixkle. 

No. 87. — Laxdlord's Notice to Quit for Nox-Paymext of Rext 

Graxd Islaxd, Neb., July 1, 1902. 

State of Nebraska, ) 

yss. 
Hall Couxty. j 

To Clyde Sampson: 

You being in possession of the following described premises, 
the two-story brick building located on Lot eight (8), Block 
twenty-nine (29), city of Grand Island, Nebraska, which you oc- 
cupy as my tenant, are hereby notified to quit and deliver up to 
me the premises aforesaid, in fourteen days from this date, ac- 
cording to law, your rent being due and unpaid. Hereof fail not, 
or I shall take a due course of law to eject you from the same. 

Harry Sparlixg. 
Witxess: Ross Kearxs. 

No. 88. — Laxdlord's Notice to Leave at Exd of the Term 

To Clyde Sampson: 

Sir — Being in the possession of a certain building with the 
appurtenances, situated on Lot eight, Block twenty-nine, city of 
Grand Island, Neb., which said premises were demised to you by 
me for a certain term, to-wit, from the 1st day of February, 
A.D. 1902, until the 1st day of February, A.D. 1903, and which 
said term will terminate and expire on the day and year last 
aforesaid, I hereby give you notice that it is my desire to have 
again and repossess the said building, with the appurtenances, 
and I therefore do hereby require you to leave the same upon 
the expiration of the said herein-before-mentioned term. 

Witxess my hand this 10th day of November, city of Grand 
Island, A.D. 1902. 

Harry Sfarlixg. 
Witxess: W. H. Ellisox. 



LANDLORD AND TENANT 425 

No. 89 — Landlord's Notice to Determine a Tenancy at Will 

Grand Island, Neb., March 15, 1903. 



State of Nebraska, ) 

>ss. 
Hall County. J 

To Clyde Sampson: 

You being in possession of the following described premises, 
Lot eight, Block twenty-nine, city of Grand Island, Neb., which 
you occupy as my tenant at will, are hereby notified to quit and 
deliver up to me the premises aforesaid on May 1, 1903, accord- 
ing to law, it being my intention to determine your tenancy at 
will. Hereof fail not, or I shall take a due course of law to 
eject you from the same. 

Harry Sparling. 
Witness: Howard Ellison. 



426 LANDLORD AND TENANT 

LANDLORD AND TENANT 

REVIEW QUESTIONS 

Define landlord. 

Define tenant. 

What are the parties to a lease called? 

May anything besides lands and buildings be leased? 

What is a lease? 

Is a verbal lease binding? 

How many copies of the lease should be made? 

What is meant by the Term of Lease? 

What is the object of a long-time lease? 

What is a lease for life? 

What is rent? 

How may it be paid? 

Is the tenant held for rent if the building be de- 
stroyed? 

Is the landlord bound to make repairs? 

Is the tenant bound for the payment of rent if the 
house is in bad condition? 

May the tenant abandon the lease if the house is 
uninhabitable? 

Must the tenant make any repairs at his own ex- 
pense? 

Is the tenant bound to rebuild if the house burns? 

May a lease be assigned? 

Does the assignment release the tenant from his ob- 
ligation to pay the rent? 



LANDLORD AND TENANT 427 

Must the subtenant use the building for the same 
general purpose named in the lease? 

May the tenant sublet the property against the will 
of the landlord? 

May leased property be sold or mortgaged by the 
owner? 

If leased property be sold does the lease become 
void? 

If land is sold under foreclosure, does any lease 
there may be on the land become void? 

What rights has a tenant to a suite of rooms? 

Must the tenant pay the taxes? 

If a farm lease is unexpectedly terminated by no 
fault of the tenant, is he entitled to the crops already 
planted? 

What is a notice to quit? 

When should notice be sent to the tenant? 

Must tenant send the landlord notice if he intends 
to quit? 

What is waste? 

What is actual eviction? 

What is constructive eviction? 

Define fixtures. 

What improvements may a tenant remove? 

What improvements may he not remove? 

When must the tenant remove his fixtures? 



4:28 WILLS 



CHAPTER XXXIV 

WILLS 

761. Definition. — A will is an instrument by which 
a person directs what shall be done with his property 
after his death. 

762. Parties. — If a man makes a will he is called 
the testator (tes-ta'-tor). If a woman makes a will 
she is called the testatrix (tes-ta'-triks). The one who 
receives real estate by the will is called a devisee 
(de-vi-ze'), but any one receiving personal property 
is called a legatee (leg-a-tee') , or the recipient of prop- 
erty of any kind by a will is sometimes called a donee 
(do-ne'). The person appointed to execute the will, 
that is, to see that its provisions are carried into ef- 
fect, is called the executor (eg-zek'-u-tor). 

763. Who May be a Donee. — While every one can not 
make a will bequeathing his property to another, any 
person may be the donee of a will. Even persons who 
are incapable of making legal contracts, such as in- 
fants or persons of unsound mind, may be legatees or 
devisees of a will. 

764. Power to Make Wills. — Every person of legal 
age and sound mind who owns real property or any 
interest therein descendable to his heirs may devise 



wills 429 

and dispose of same by his last will and testament, 
provided all his lawful debts are first paid. While 
under the common law married women could not make 
wills, the statutes of nearly all the states have now 
granted them that right. 

765. Unwritten Wills. — Unwritten or nuncupative 
(nun-kii'-pa-tive) wills are recognized in many of the 
states under certain extraordinary circumstances and 
also when made by soldiers and seamen in actual ser- 
vice. They must in every case be witnessed by two or 
more disinterested persons, and reduced to writing 
within a few days, usually six, after the will is made. 
It must be proved that the testator did bid the persons 
present, or some of them, to bear witness that such 
was his will. 

Unwritten wills are discouraged as far as possible, 
as they open such an inviting field for fraud. 

766. Witnesses. — Most states require two persons to 
sign as witnesses to the execution of a will, but some 
states require three. Great care should be taken when 
possible to select disinterested witnesses of high stand- 
ing and well known character, for their evidence may 
be of the utmost importance in case the will is con- 
tested. Any one of sufficient understanding may, 
however, be a witness, even though he be a minor. The 
will should be signed by the testator in the presence of 



430 WILLS 

all the witnesses. He should then declare it to be his 
last will and testament, and each witness should, in 
the presence of the testator and the other witnesses, 
sign his name to the document. Any alteration or eras- 
ures in the will should be referred to by the witnesses 
in their attestation. No one who is in any way inter- 
ested in the estate, such as donee or executor, should 
sign the will as witnesses, for it might have the effect 
of invalidating the will, or at least that part of it 
wherein the witness is made one of the donees. 

767. Testator Chooses Donees. — Any one possessing 
property in his own right may, in most of the states, 
will the same to one entirely outside of the family if 
he prefers to do so, or he may bequeath it to institu- 
tions of charity if he be so inclined. 

The wife can not be deprived of her dower right by 
will, and usually may choose between the will and 
the dower, which the law provides for her. 

Some states require the testator to mention each of 
his children in the will, but he may, if he prefers, fol- 
low the grim humor of a crusty old bachelor who, 
after making a number of charitable bequests in his 
will, remarked, "I remember all my cousins, aunts, 
and uncles, but give them nothing." 

768. Prospective Devise. — A prospective devise is one 
where the testator devises land which he does not own 






WILLS 431 

at the time of making the will, but which he acquires 
at a later date. This may generally be accomplished 
by inserting in the will the following words : "The 
lands that I now have, or may have at the time of my 
death." 

769. Codicils. — A codicil (kod'-i-sil) is a supplement 
or addition to a will explaining, adding to, or altering 
its provisions. The codicil is made by the testator 
and becomes a part of the will. 

Codicils to a will should be drawn with great care, 
and words like the following or those of similar im- 
port should be used : "I hereby expressly confirm my 

former will dated excepting so far as the 

disposition of my property is changed by this 
codicil." 

If, after making the will, money is advanced to any 
of the donees, it should be stated in a codicil whether 
such advances are to be deducted from the amount 
bequeathed such donees, and if with interest, etc. 

770. May be Several Codicils. — There can be but one 
will, but there may be any number of codicils. If 
properly drawn they do not weaken the will, and in 
some cases may strengthen it. 

It is always advisable to write them on the same 
sheet with the will, or to attach them to the same, but 
this is not absolutely necessary, so long as they refer to 



432 wills 

it in such a manner that there can be no doubt as to 
the intention of the testator. 

Each codicil must be executed and witnessed in the 
same manner as the original will. 

771. Revoking a Will. — A testator may revoke his 
will in many ways. He may at any time destroy it by 
burning, tc ring, or canceling it. He may dispose of 
the property which the will was intended to bequeath. 
He may add a codicil substituting other donees for 
those mentioned in the will, or it may, in some cases, 
be revoked by marriage of the testator. 

To tear off the signature of the testator would gen- 
erally destroy the will, but the question as to who tore 
off the signature might arise; therefore it is best to 
destroy the document. 

If the will has been deposited with some one, or if 
for any reason it is not within reach of the testator 
and therefore can not be destroyed, it can be revoked 
by making a new one. 

772. Depositing of Will. — The testator may retain 
his will in his own possession, or, if he prefers, he may 
enclose the same in a sealed envelope on which is writ- 
ten his name and address, and deposit it with the 
judge of probate of the county where he resides. The 
judge will give him a certificate of deposit and safely 
keep the will. 



WILLS 433 

773. Delivery and Opening of Will. — Wills deposited 
with the judge of probate are not delivered to any one 
except the testator himself, during his lifetime, unless 
it be upon a written order from the testator duly 
proved by the oath of the subscribing witness. 

After the death of the testator and at the first pro- 
bate court after the notice thereof, it shall be publicly 
opened by the judge of probate and be retained by 
him. 

Should a will be in the possession of any person 
other than the judge of probate, he should deliver it 
to the probate court having jurisdiction of the case at 
once upon the death of the testator. 

774. The Executor. — The executor (eg-zek'-u-tor) of 
a will is the person named by the testator to carry out 
the provisions of his last will and testament. He is 
required to give bond for the faithful performance of 
his duties, unless it be stipulated in the will to the con- 
trary. A woman appointed to execute a will is called 
an executrix (eg-zek'-u-triks). 

775. Duties of Executor. — It is the duty of the ex- 
ecutor to carry out the provisions of the will as far 
as possible. Lie should collect all the money due to 
the estate and pay all debts of the testator. The bal- 
ance should then be disposed of as directed by the will. 
Too much stress can not be placed upon the im- 

28 



434 WILLS 

portance of keeping an exact and complete record of 
every transaction, whether it be large or small, and 
detailed reports should be made to the court occa- 
sionally. 

The executor can not be held for the payment of the 
testator's debts, except to the extent of the estate in- 
volved, unless he gives his written agreement to be- 
come personally responsible for same. 

776. Probate of Will. — Probating a will consists in 
producing satisfactory evidence before the judge of 
probate to show that the will offered is the last will 
and testament of the person therein named as testator. 

If no person appears to contest the probate of the 
will at the time appointed, and the proof of the valid- 
ity of the will is satisfactory to the judge, he will ad- 
mit it to probate and direct that it be recorded. 

777. Contesting a Will. — If the genuineness or valid- 
ity of the will is open to question, any interested party 
may contest the same. A contest is usually based 
upon one of the following claims : 

1. That it was forged. 

2. That it was revoked. 

3. That it was not executed according to law. 

4. That it was procured by force or fraud or mis- 
representation. 



WILLS 435 

5. That the testator was incompetent on account of 
mental disability. 

778. Provision Against Contesting. — Sometimes the 
maker of a will inserts a clause to the effect that any 
donee who contests the validity of the will shall be dis- 
inherited and therefore receive nothing whatever, and 
the courts have upheld such provisions. If, however, 
the contest proves successful, and the will be set aside, 
the provision of disinheritance would be of no force or 
effect. 

779. Letters Testamentary. — When a will has been 
duly proved and allowed the judge of probate issues 
to the executor of the will a document called letters 
testamentary ( tes-ta-nien'-ta-ri ) . 

These letters recite that the will has been probated 
according to law, that the executor has been sworn to 
the faithful performance of his duty, and that he is 
authorized to proceed at once to carry out the provi- 
sions of the will. 

780. Removal of Executor. — If an executor shall 
neglect his duty or refuse to settle the estate accord- 
ing to law, or to perform any decree of the court, or 
abscond, or become insane, or otherwise incapable of 
discharging the trust, the judge may revoke the letters 
testamentary and remove the executor. 

781. Corporations as Donees. — Commercial corpora- 



436 -WILLS 

tions, such as banks, railroad companies, etc., can not 
generally be the recipients of property by a will; but 
eleemosynary (el-e-mos'-i-na-ri) or charitable cor- 
porations, such as hospitals, schools, colleges, etc., 
supported by public or private donations, are allowed 
by a provision in their charters to receive gifts and 
bequests. 

782. Law of Place. — The local statutes should be 
carefully consulted by those who are especially in- 
terested, and all bequests of personal property should 
conform strictly to the law of the state in which the 
testator resides, even when the property is located in 
another state. 

In devising real property, the will should be in ac- 
cord with the laws of the state in which the land is 
located. 

783. Wills of Minors. — Wills made by minors are 
not generally valid, but the law of some of the states 
permits a minor who has reached the age of sixteen to 
dispose of his personal property by will. 

A will made by a minor may be affirmed by a codicil 
after he becomes of age, and it will then be recognized 
by the courts as binding. 



WILLS 437 

No. 90'. — Form of Will 

I, William A. Hammond, of the city of Grand Island, County 
of Hall, and State of Nebraska, being of sound and disposing 
mind and memory, do hereby make public and declare this to be 
my last will and testament, hereby revoking all former wills by 
me at any time made. 

1st — I direct my executrix, hereinafter named, to pay all my 
Just debts and funeral expenses. 

2d — I give and bequeath unto my son, George H. Hammond, 
fifty shares of the capital stock of the First National Bank of 
Grand Island, Nebraska, which now stand to my credit on the 
books of said bank. 

3d — I give and bequeath unto my daughter, Mary S. Ham- 
mond, Five Thousand Dollars in United States, four per cent, 
government bonds. These bonds are now owned by me and are 
deposited in the safety vault of the Grand Island Banking 
Company. 

4th — I give and bequeath unto my brother, William, and to 
my sister, Bertha, each the sum of Five Hundred Dollars. 

5th — All the rest and residue of my property, real, personal, 
and mixed, wheresoever situated, which I now own or may here- 
after acquire, and which I die seized or possessed of, I give, de- 
vise, and bequeath, absolutely and in fee simple, to my wife, Jen- 
nie C. Hammond, her heirs, and assigns forever. 

I hereby constitute and appoint my said wife, Jennie C. Ham- 
mond, executrix of this, my last will and testament, and request 
that my executrix be not required to give bonds for the per- 
formance of her duty as such. 

Witness my hand this 1st day of January, A.D. 1902. 

William A. Hammond. 

Signed, published and declared by the above named testator, 
William A. Hammond, as and for his last will and testament, in 
the presence of the undersigned, who in his presence and at his 
request, and in the presence of each other, have signed our names 
as subscribing witnesses hereto, believing him, at the time of 
such signing, to be of sound and disposing mind and memory. 
Abraham Ulry, 315 East Sixth St., Grand Island, Neb. 
William Crawford, 210 West Fifth St., Grand Island, Neb. 
George B. Mason, 902 West Tenth St., Grand Island, Neb. 



438 WILLS 

784. By Operation of Law. — Any person who dies 
without making a will is said to be an intestate (in- 
tes'-tat), and all property owned by such a person is 
distributed among his relatives according to the law 
of the state in which he resided. This is called dis- 
tribution by operation of law. 

785. Administrator. — An administrator is a man ap- 
pointed by the court to settle the estate of a de- 
ceased person when no will has been made. If a will 
was made and no executor was appointed, or having 
been appointed, refuses or is unable to act, then an 
administrator is appointed "with the will annexed." 
If a woman is appointed to this position, she is called 
an a dm ini stratrix ( ad-min-is-tra'-triks ) . 

786. Who Entitled to Appointment. — It is generally 
recognized that the husband of a deceased wife or the 
wife of a deceased husband, or the next of kin, has the 
right to be appointed administrator. 

Should the person naturally entitled to the appoint- 
ment not wish to act, or be unsuitable, or incompetent, 
the court may appoint some one else, according to the 
statutory provisions. 

787. Personal Property Only. — An administrator is 
supposed to act as the personal representative of the 
deceased, discharging his debts, collecting the obliga- 
tions due to him, and carrying out his contracts. 



wills 439 

His operations are confined to personal property, 
except iD cases where the sale of part or all of the 
real estate is necessary for the payment of the debts 
of the deceased, and even then the administrator can 
not dispose of any of the realty belonging to the estate 
without an order from a court of competent authority. 

788. Real Estate. — All real property belonging to the 
estate which is not sold by order of the court descends 
to the lawful heirs of the deceased without any action 
on the part of the administrator. 

789. Inventory. — The administrator is required by 
law to make a true inventory of all real estate, goods, 
chattels, rights, credits, etc., belonging to the estate 
of the deceased. This inventory must be filed with the 
judge of probate, and in settling up the estate all the 
items must be accounted for. 

790. Administrator's Fees. — The fees paid to the ad- 
ministrator are regulated by the local statutes. In 
Nebraska they are five per centum on the first, f 1,000 
collected; two and one-half per centum for all above 
that sum, and not exceeding five thousand dollars; 
and one per centum for all above five thousand dollars. 

The same fees are allowed to an executor of a will 
in case no compensation is provided for in the will 
itself. 

791. Uiider Direction of the Court. — The power of an 



440 WILLS 

administrator is confined to the authority given him 
by the probate court. He acts under the directions of 
the judge and is constantly advised and directed by 
him. He must make reports to the court from time 
to time, until the final settlement of the estate. 

792. Insolvent Estate. — If the debts of the deceased 
are greater than the estate, the administrator should 
report this fact at once to the court, and follow the re- 
quirements of the law prescribed by the state for deal- 
ing with insolvent estates of deceased persons. 

793. Order of Payment. — If an estate is insolvent 
and all debts can not be paid, they are usually given 
preference in the following order : 

1st. Necessary expenses of the probate court. 
2d. Necessary funeral expenses. 
3d. Expenses of last sickness. 
4th. Debts due to the United States. 
5th. Debts due the state where the deceased re- 
sided. • 

6th. Debts due to other creditors. 



WILLS 441 

WILLS 
REVIEW QUESTIONS 

Define a will. 

Who is a testatrix, testator, devisee, legatee? 

Who may be a donee? 

Who may be a testator? 

Are unwritten wills valid? 

» 

Must they be reduced to writing? 

How many witnesses are required to a will? 

Who may be a witness? 

May the testator will all the property away from 
his family? 

Can the wife be deprived of her dower right? 

Define a prospective devise. 

Define a codicil. 

Should the codicil be attached to the will? 

How may a will be revoked? 

Where are wills usually deposited? 

If a testator deposits his will with the probate 
judge, will it be returned to him at his request? 

Who is an executor? 

Mention some of his duties. 

Is he liable for the debts of the estate? 

What is meant by probating a will? 

On w T hat grounds may a will be contested? 



442 WILLS 

What method is sometimes used to prevent a will 
from being contested? 

What are letters testamentary? 

May an executor be removed by the court? 

May corporations receive property by will? 

In devising land should the testator follow the laws 
of the state where he lives, or those of the state in 
which the land is located? 

What is the rule in bequests of personal property? 

Are minors capable of making wills? 

Define distribution of property by operation of law. 

Who is an intestate? 

Who is an administrator? 

Who is entitled to be appointed administrator? 

Has the administrator charge of the real estate of 
the deceased? 

Is it necessary to make an inventory of the prop- 
erty? 

In what manner is the administrator paid for his 
work? 

Does he work under the direction of the court? 

What is an insolvent estate? 

In what order are the claims paid? 



GUARDIANS AND WARDS 443 



CHAPTER XXXV 



GUARDIANS AND WARDS 

794. This chapter is taken from the laws of Ne- 
braska, and will be found applicable to nearly ail the 
states. 

795. Minor. — A minor is a person of either sex who 
has not attained to the age required by law for the 
performance of certain acts ; therefore in the eye of the 
law he is regarded as an infant. 

The age prescribed in most of the states is twenty- 
one for males and eighteen for females, but in Ne- 
braska if a girl marries between sixteen and eighteen 
her minority ends. 

796. Guardians. — A guardian (giir'-dian) is a per- 
son appointed by the court to whom is intrusted the 
person, or property, or both, of another, called the 
ward. 

797. Appointment. — If the minor be under the age 
of fourteen years, the court of probate may appoint 
his guardian, but if he be above that age, he has the 
right, himself, to select some suitable person, and the 
court will appoint him. 

798. Parents. — Parents are the natural guardians of 
their minor children, and they are equally entitled to 



444 GUARDIANS AND WARDS 

their custody and to the supervision of their educa- 
tion, If either father or mother dies or becomes dis- 
qualified for acting as guardian, the guardianship de- 
volves upon the other. 

799. Duties of Guardian. — The guardian usually 
has charge of the ward, together with the care and 
management of his estate. His position is that of a 
trustee, and he has the power to dispose of the per- 
sonal property in any manner he believes to be in the 
interest of his ward, but is held to a strict responsi- 
bility for careful management. 

He may lease real estate belonging to the ward, but 
he can not sell it without an order from the court of 
competent authority. 

800. Guardian's Bond. — Guardians are usually re- 
quired to give a bond in such sum as the court may 
order, with conditions as follows : 

1st. To make a true inventory of all real and per- 
sonal property belonging to the ward and file the same 
with the court. 

2d. To faithfully discharge his trust as guardian 
and to manage the estate according to law and for the 
best interests of the ward. 

3d. To render a full account within one year, and 
thereafter when requested by the court, of all the 
property belonging to the ward's estate. 






GUARDIANS AND WARDS 445 

4th. At the expiration of his trust to promptly set- 
tle and deliver over to the ward or his representative 
all property, money, ete., which he is lawfully en- 
titled to. 

801. Expenses of Minors. — If any minor who has a 
father living has property of his own, the income of 
which is sufficient for his maintenance and education 
in a manner more expensive than such father can rea- 
sonably afford, the expenses of the education and 
maintenance of such minor may be defrayed out of the 
income of his own property, in whole or in part, as 
shall be judged reasonable and as shall be directed by 
the court. 

802. Guardian Appointed by Will. — The surviving 
parent may by will appoint some suitable person as 
guardian for the minor children, and if the testator 
requests that the guardian be not required to give 
bond, such request will be respected unless, on account 
of changed conditions or for sufficient cause, the court 
shall think it proper to require one. 

803. Examination of Insane Person. — When the re- 
lations or friends of any insane person, or of any per- 
son who by reason of extreme old age, or other cause, 
is mentally incompetent to have charge or manage- 
ment of his property, shall apply to the court of pro- 
bate to have a guardian appointed for him, the court 



446 GUARDIANS AND WARDS 

shall cause a notice to be given to the supposed insane 
or incompetent person at least fourteen days before 
the time appointed for the hearing. 

804. Guardian for an Insane Person. — If, after a 
careful examination and full hearing, the court shall 
be satisfied that the person in question is incapable 
of taking care of himself and managing his property, 
he shall appoint a guardian of his person and estate. 

805. Guardian of Spendthrift. — When any person, 
by excessive drinking, or gaming, or idleness, or de- 
bauchery of any kind, shall so spend, waste, or lessen 
his estate as to expose himself or family to danger of 
want, any officer having charge of the poor of the 
county, or any justice of the peace of the county, may 
present a complaint to the court of probate, setting 
forth the facts and praying that a guardian be ap- 
pointed for him. 

Ten days' notice of a hearing shall be given the sup- 
posed spendthrift, and if the court is convinced that 
the conditions are as stated, a guardian will be 
appointed. 

800. Penalty for Neglect. — Any guardian who shall 
neglect to properly feed and clothe, or who shall in 
any way abuse his ward, shall, upon conviction 
thereof, be fined not exceeding f 100, or imprisoned in 
the county jail not exceeding sixty days, or both. 



GUARDIANS AND WARDS 447 

807. Compensation of Guardian. — Every guardian 
shall be allowed the amount of his reasonable expenses 
incurred while performing his duties, and shall also 
have such compensation for his services as the court 
shall deem to be just and reasonable. 



GUARDIANS AND WARDS 
REVIEW QUESTIONS 

Who is a minor? Who is a ward? 

At what age does a person reach his majority? 

Who is a guardian? How is the guardian ap- 
pointed? 

Does the guardian have charge of the estate of the 
ward? 

At wiiat age does the minor have the right to select 
his guardian? 

Are the parents the natural guardians? 

If the father or mother should die. does the other 
become guardian? 

Name some of the duties of a guardian. 

Has he full charge of the w 7 ard's personal property? 

Has he full charge of the ward's real estate? 

Does the guardian give* a bond? 

May a guardian be appointed by will? 

Is a guardian ever appointed for an insane person? 

Is a guardian ever appointed for a spendthrift? 

What is the penalty if a guardian neglects or abuses 
his ward? How is the guardian paid? 



448 BANKS AND BANKING 



CHAPTER XXXVI 

BANKS AND BANKING 

808. A bank is an institution whose business con- 
sists in receiving deposits, loaning money, discounting 
notes, paying checks, buying and selling exchange, 
making collections, etc. Originally banks were used 
merely as places for the safe-keeping of money, bullion, 
jewels, or other valuables. Under this system, the 
depositor had to pay for the privilege of leaving his 
property in the bank, and the money or bullion thus 
deposited remained idle and unproductive in the bank 
vaults until the owner called for it. 

In more modern times, however, with the improved 
methods of doing business, banking has been reduced 
to a science, and money deposited in these institutions 
is not withdrawn from circulation, but loaned out 
again, much to the benefit of society in general. 

809. Of Ancient Origin. — Banks are of very ancient 
origin. The Chinese are .said to have records of bank 
bills issued as early as 2697 B.C., and Babylonian 
tablets are exhibited at the Metropolitan Museum of 
Art in New York bearing records of banking trans- 
actions of the date of 601 B.C. during the reign of 
Nebuchadnezzar. 






BANKS AND BANKING 449 

The Jews of Loinbardy are thought to have been 
the first to make a business of banking; but their 
operations along this line were of a very primitive 
character. The work of each was done in the open 
market place on a modest banco or bench, and from 
the word banco we get our word bank. When a 
banker failed, his bench was broken to pieces by the 
populace, and he was called a bankrupt. Banco 
meaning bank, and ruptere meaning to break. 

810. The Bank of Venice. — The bank of Venice was 
established in 1171 A.D., and to the results of its ex- 
perience may be attributed our modern system of 
banking. The Republic being greatly embarrassed, 
each citizen was compelled to loan the government, 
through this bank, 1 per centum of his possessions. 
This money could not be withdrawn from the bank, 
but the certificates could be transferred at the pleas- 
ure of the holders. These certificates were usually 
at a premium over the current coins, which were, as 
a rule, worn and clipped so as to be under the stand- 
ard weight, and the government, finding the plan so 
popular, kept reducing the rate of interest until no 
interest whatever was paid. 

811. Bank of England. — The Bank of England was 
established July 27, 1694, with a capital of nearly 
$6,000,000 and is to-day conceded to be the greatest 

29 



450 BANKS AND BANKING 

financial institution in the world. The capital has 
been increased to $80,000,000, and its influence is now 
felt in every civilized land. 

It not only does a general banking business, but 
it is employed as agent to transact for the government 
all business of a financial character. Its notes are is- 
sued in denominations of £5 to £1,000 for any sum, 
when bullion is deposited in its vaults in exchange 
for same. 

These notes are legal tender everywhere in England 
except at the bank itself, and they are never paid out 
the second time, but are canceled as soon as they are 
presented, and new bills take their places. 

812. Bank of North America. — There was little need 
of banks during the colonial period, and they were 
almost unknown in this country before the Eevolu- 
tionary War. While numerous attempts at 'bank- 
ing were made in a private way, the first authorized 
and successful bank in the United States was estab- 
lished at Philadelphia on December 31, 1781, and 
known as the Bank of North America. Its chief 
promoter was Robert Morris, at that time Superin- 
tendent of Finance, who submitted a plan to Congress 
for the establishment of the bank, and recommended 
that the government subscribe for 633 shares of $400 
each. 



BANKS AND BANKING 451 

His plan and recommendations were adopted. It 
was a success from the first, and this bank rendered 
valuable aid to the United States government at a 
period when financial help was sorely needed. It 
also did much toward establishing public confidence, 
and in that way aided wonderfully in promoting the 
commercial interests of the country. It is worthy 
of note that this bank is still in existence and in a 
thriving condition. 

813. The Bank of the United States. — Under the 
leadership of Alexander Hamilton, then Secretary of 
the Treasury, the Bank of the United States was in- 
corporated on February 25, 1791, in the city of Phila- 
delphia. The capital stock was limited to f 10,000,000, 
the United States government subscribing the sum of 
§2,000,000 under the right reserved in the charter. 

Branch offices were established in eight of the chief 
commercial cities, and the notes of the bank were 
legal tender for all debts due in the United States. 
The bank was well managed, but when the charter 
expired in 1811 Congress refused to renew it. About 
$7,000,000 of the stock -was held by foreigners, and 
this seemed to be the principal objection to the re- 
newal of the charter. The dissolution of this bank 
gave a great impulse to the establishment of local 
banks in all parts of the country. 



152 BANKS AND BANKING 

814. The Second Bank of the United States.— It was 
now thought that enormous profits could be made in 
the banking business, and local state banks multi- 
plied so rapidly and issued such quantities of circu- 
lating notes that the situation became alarming. The 
war of 1812 was now in progress, and in 1814 when 
the news came that the British had taken Washington 
the shock was too much for the banks, and most of 
them suspended specie payment. 

This disaster caused Congress to again take up the 
question of organizing a national bank in which the 
government should retain a controling interest. The 
result was that the Second Bank of the United States 
was incorporated April 10, 1816, with a capital of 
135,000,000, the government taking $7,000,000 of 
same. The fight against the renewal of the charter 
of this bank was made the principal issue of the 
presidential election, when Andrew Jackson con- 
ducted his memorable campaign in opposition to the 
bank. 

Henry Clay as candidate of the National Repub- 
lican party stood for the renewal of the charter, while 
Jackson as candidate of the Democratic party opposed 
it, claiming that it placed a great power in the hands 
of a few men which could be used to influence elec- 
tions and dominate private business; that the exclu- 



BANKS AND BANKING 453 

sive privileges which it enjoyed were a species of 
favoritism, etc. Jackson was elected by an over- 
whelming majority. 

815. Wildcat Banks.,— From 1833 to 1837, while 
President Jackson was engaged in his great contest 
with the United States Bank, many state banks were 
organized throughout the country. 

They were allowed to issue bank notes to circulate 
as money for an amount equal to their alleged capital 
stock, but many of them had little or no specie with 
which to redeem their notes. The security they put 
up with the state for the redemption of these notes 
consisted of bonds issued by states, counties, cities, 
private corporations, and even private mortgages on 
real estate, many of which were Avorthless or of un- 
certain value. 

A favorite scheme for these wildcat bankers was 
to go into a distant part of the country and buy land 
with their worthless money, then sell it at once for 
good money, hoping the bills would not soon find 
their way back to the bank for payment. 

816. The End of State Bank Circulation.— In 1861 the 
circulation of this country was issued by sixteen hun- 
dred of these state banks organized under the laws of 
thirty-four different states. 

This wholesale issuing of paper money, a part of 



454 BANKS AND BANKING 

which was valueless and the remainder questionable, 
soon drove gold and silver out of general circulation, 
but, bad as the system was, it continued until the 
outbreak of the Rebellion in 1861, when many of the 
banks collapsed and most of those remaining w T ere 
later converted into national banks. 

On March 3, 1865, an act was passed by Congress 
imposing a tax of 10 per cent on all notes issued by 
any person or state bank to be used and circulated 
as money. This had the effect of taxing the state 
bank circulation out of existence. 

817. History of Banking. — A volume might easily be 
written on the history of banks and banking, but we 
have only touched a few of the landmarks, and 
dropped a few hints that the student may have some 
idea of the beginning and development of the banking 
business in this country. 

818. Benefit to Society. — Banks are very important 
factors in the commercial enterprise of modern 
times. Indeed, it would be almost impossible to get 
along under the present system of doing business 
without the facilities afforded by the banking houses 
of to-day. The banks receive deposits in any amount, 
whether great or small, and thus provide a safe place 
for the keeping of money. The most important bene- 
fit, however, is the opportunity which they afford 



• BANKS AND BANKING 455 

business men and others for borrowing money, when 
their own capital is tied up in merchandise or ac- 
counts. The small sums left with the bank by the 
numerous depositors grow into a large fund, and 
while this money would be idle and useless in the 
pockets of the owners, it gives a wonderful impetus 
to business when loaned out by the bank to manufac- 
turers, feeders, merchants, builders, etc. 

819. Moral Influence. — During the reign of "wild- 
cat banking" the business naturally fell into bad re- 
pute and came to be regarded by most people as noth- 
ing more than a legalized system of wholesale rob- 
bery. The feeling was so bitter against the banks 
that many were opposed to allowing them to exist in 
any form, and in Michigan they went so far as to 
amend the constitution excluding them from the 
state. 

The situation is now reversed, and every one rec- 
ognizes the importance of good banking facilities. 
In fact, the banking business as at present conducted 
by the careful, conservative institutions of this 
country exerts a strong influence for good upon the 
morals of society. 

From motives of self-interest a banker is compelled 
to carefully investigate the moral character of his 
borrower. He must know whether he is honest or 



456 BANKS AND BANKING 

dishonest, whether upright or trickey, whether eco- 
nomical or extravagant, whether conservative or 
speculative, whether idle or industrious, for a banker 
prefers to loan money to a poor man who is honest 
and industrious rather than a wealthy man who is a 
trickster. 

The favorable opinion of a banker often aids a 
young man in many other ways. If he applies for a 
position or tries to buy goods on credit, the local bank 
is frequently consulted as to his standing, even though 
he has not given the bank as a reference. Thus we 
see that a careful, conscientious banker, on account of 
the position he holds in a community, does much to 
promote commercial honor and becomes to some ex- 
tent a conservator of good morals. 

820. Kinds of Banks. — Banks are divided as to their 
organization into three classes, viz., national banks, 
state banks, and private banks. 

The three great banks already mentioned, viz., the 
Bank of North America, the First Bank of the United 
States, the Second Bank of the United States, were 
distinctively government institutions. They were 
incorporated by special act of Congress, and the gov- 
ernment, being a large stockholder and patron, di- 
rected their policy to a great extent. 

The government has no financial interest in the 






BANKS AND BANKING 457 

national banks of to-day, and they are in fact only 
private corporations under the supervision of an offi- 
cial of the national government, instead of the state. 

821. National Banks. — All national banks must be 
organized in strict conformity to the National Bank 
Act passed by Congress June 3, 1864, many of the 
leading features of which are noticed in the following 
pages under the heading "Organization, etc., of Na- 
tional Banks." 

National banks are allowed to issue circulating 
notes according to the terms of the act, but they must 
purchase in the market, United States government 
bonds, which are to be deposited with the government 
as a guaranty that their circulating notes will be re- 
deemed on demand. 

822. State Banks. — State banks are organized in 
accordance with the laws of the various states in 
about the same manner as other commercial corpora- 
tions, and are generally under the control of the state 
banking board. 

The strong objection formerly urged against state 
banks was that the system of allowing them to issue 
circulating notes was defective. In many cases they 
were permitted to deposit worthless bonds or mort- 
gages with the state as security for the redemption 



458 BANKS AND BANKING 

of their notes, and in case of failure the holders of 
these notes had to bear the loss. 

This was a serious objection, but it was entirely 
swept away on March 3, 1865, when Congress passed 
a law laying a 10 per cent tax on the circulation of 
state banks. This amounted to an absolute prohi- 
bition, and state banks have not since that time issued 
notes for circulation. 

The change has been highly beneficial to the pub- 
lic as well as to the banks. They now do a thriving 
business and take a place along with national banks 
in conservative management and public confidence. 

823. Private Banks. — A private bank is one con- 
ducted by an individual or a firm and is not incorpo- 
rated. 

The kind of business and the manner of transact- 
ing it is practically the same in private, state, and 
national banks, the only material difference being 
that national banks issue circulating notes and the 
others do not. 

A private banker must depend upon his reputation 
for honesty and trustworthiness, as well as his abil- 
ity and wealth, to gain and hold the confidence of his 
patrons. 



BANKS AND BANKING 459 



The information and hints given in the remainder 
of this chapter were gathered principally from the 
National Bank Act passed June 3, 1864, and from sug- 
gestions furnished by the Controller of the Currency. 

824. The Object.— The object of the National Bank 
Act was two-fold : first, it was hoped that it would 
place the currency of the country upon a safe and uni- 
form basis; second, it was expected that it would af- 
ford a market for the sale of a great quantity of 
government bonds. 

The expenses of the war had been enormous, and 
the government, having exhausted every other re- 
source, was still in pressing need of money ; therefore 
compelling every bank to purchase bonds to be used 
as security for its circulation afforded a sure means 
of bringing millions into the treasury. 

825. Controller of Currency. — One of the provisions 
of the act creates a currency bureau in the depart- 
ment of the treasury and provides for the appoint- 
ment of the Controller of Currency as its chief officer. 

He is appointed by the* President for a term of five 
years at an annual salary of $5,000, and is charged 
with the execution of all laws passed by Congress 
relating to the issue and regulation of national cur- 
rency secured by United States bonds. 



460 BANKS AND BANKING 

826. Preliminary Application. — The first thing to 
be done in organizing a national bank is to make a 
written application to the Controller of the Currency 
stating the desired title, the location, and proposed 
capital. This application should be signed by at 
least five persons who expect to take stock in the 
bank. It should also contain a statement as to the 
business and financial standing of the applicants and 
be endorsed by a United States senator, representa- 
tive, or some other prominent person. 

If the application is approved by the Controller he 
will furnish all necessary blanks for completing the 
organization. The following letter of application 
would meet all the requirements : 

No. 90. — Application to Organize 

Grand Island, Neb., September 1, 1903. 
To the Controller of the Currency, Washington, B. C: 

Sis — Notice is hereby given that we, the undersigned, being 
natural persons and of lawful age, intend, with others, to organ- 
ize a national banking association under the title of "The Sec- 
ond National Bank of Grand Island," to be located in Grand 
Island, county of Kail, state of Nebraska, with a capital of 
$100,000. 

In order that we may effect such organization we request 
that proper blank forms be sent to Charles W. Morris, at Grand 
Island, Neb., and if the title selected shall be approved, that it 
be reserved for a period of sixty days. 

names residences 

Charles W. Morris, Grand Island, Nebraska. 

Everett M. Williams, Ord, Nebraska. 
Frank E. Slusser, Wood River, Nebraska. 

David H. Hull, Central City. Nebraska. 

Jesse C. Davis. Grand Island, Nebraska. 






BANKS AND BANKING 461 

On the back of this application should be given the 
business in which each applicant is engaged, together 
with an estimate of his financial strength. It should 
then be forwarded to some senator or representative 
for his endorsement. 

827. Articles of Association. — Upon receiving a fa- 
vorable reply to the application, the persons interested 
should enter into articles of association. The articles 
should specify in general terms the object for which 
the association is formed and may contain any other 
provision for the regulation of its business not con- 
trary to or inconsistent with law. 

828. Number of Persons. — These articles must be 
signed by at least five persons uniting to form the 
association, and a greater number may sign if it is 
desired. 

A copy of the articles must be forwarded to the 
Controller of Currency to be filed in his office, and the 
following form is recommended with such modifica- 
tions as may be required. 

No. 91. — Form for Articles of Association 

For the purpose of organizing an association to carry on the 
business of banking, under the laws of the United States, the 
undersigned subscribers for the stock of the association here- 
inafter named do enter into the following articles of association: 

First — The name and title of this association shall be "The 
Second National Bank of Grand Island." 

Second — The place where its banking house or office shall be 



462 BANKS AND BANKING 

located and its operations of discount and deposit carried on and 
its general business conducted shall be Grand Island, Nebraska. 

Third — The board of directors shall consist of five share- 
holders. The first meeting of the shareholders for the election of 
directors shall be held at the office of Charles W. Morris on the 
10th day of September, 1903, or at such other place and time as 
a majority of the undersigned shareholders may direct. 

Fourth — The regular annual meetings of the shareholders for 
the election of directors shall be held at the banking house of 
this association on the second Tuesday of January of each year: 
but if no election shall be held on that day, it may be held on any 
other day according to the provisions of sec. 5149 of the Revised 
Statutes of the United States, and all elections shall be held ac- 
cording to such regulations as may be prescribed by the board of 
directors, not inconsistent with the provisions of the national 
banking law and of these articles. 

Fifth — The capital stock of this association shall be one 
hundred thousand dollars, to be divided into shares of one hun- 
dred dollars each; but the capital may, with the approval of the 
Controller of the Currency, be increased at any time by share- 
holders owning two-thirds of the stock, according to the provi- 
sions of an act of Congress approved May 1, 1886; and in case of 
the increase of the capital of the association each shareholder 
shall have the privilege of subscribing for such numbers of 
shares of the proposed increase of the capital stock as he may be 
entitled to according to the number of shares owned by him 
before the stock is increased. 

Sixth — The board of directors, a majority of whom shall be a 
quorum to do business, shall elect one of its members president 
of this association, who shall hold his office (unless he shall be 
disqualified, or be sooner removed by a two-thirds vote of all the 
members of the board) for the term for which he was elected a 
director. The directors shall have power to elect a vice-presiden f , 
who shall also be a member of the board of directors, and who 
shall be authorized, in the absence or inability of the president 
from any cause, to perform all acts and duties pertaining to the 
office of president, except such as the president only is author- 
ized by law to perform, and to elect or appoint a cashier, and such 
other officers and clerks as may be required to transact the 
business of the association; to fix the salaries to be paid to them, 
and continue them in office or to dismiss them as, in the opinion 



BANKS AND BANKING 463 

of a majority of the board, the interests of the association may 
demand. 

The directors shall have power to define the duties of the 
officers and clerks of the association, to require bonds from 
them, and to fix the penalty thereof; to regulate the manner in 
which elections of directors shall be held, and to appoint judges 
of the elections; to make all by-laws that it may be proper for 
them to make, not inconsistent with law, for the general regula- 
tion of the business of the association and the management of its 
affairs, and generally to do and perform all acts that it may be 
legal for a board of directors to do and perform under the re- 
vised statutes aforesaid. 

Seventh — This association shall continue for the period of 
twenty years from the date of the execution of its organization 
certificate, unless sooner placed in voluntary liquidation by the 
act of its shareholders owning at least two-thirds of its stock, or 
otherwise dissolved by authority of law. 

Eighth — These articles of association may be changed or 
amended at any time by shareholders owning a majority of the 
stock of the association, in any manner not inconsistent with law; 
and the board of directors or any three shareholders may call a 
meeting of the shareholders for this or any other purpose, not 
inconsistent with law, by publishing notice thereof for thirty days 
in a newspaper published in the town, city, or county where the 
bank is located, or by mailing to each shareholder notice in 
writing thirty days before the time fixed for the meeting. 

In witness whereof we have hereunto set our hands this 10th 
day of September, 1903. 

Charles W. Morris, Grand Island, Nebraska. 

Jesse C. Davis, Grand Island, Nebraska. 

Everett M. Williams, Ord, Nebraska. 
Frank E. Slusser, Wood River, Nebraska. 

David H. Hull, Central City, Nebraska. 

I certify that the articles of association of the Second Na- 
tional Bank of Grand Island are executed in duplicate; that one 
of the instruments so executed is the foregoing; and that the 
other, in all respects like the foregoing, is on file with said bank. 

September 10, 1903. 

Everett M. Williams, 
Cashier. 



464 BANKS AND BANKING 

829. Certificate of Organization. — An organization 
certificate must also be executed and signed by all 
the persons signing the articles of association. This 
certificate should give specific information as follows : 

First — The name assumed. 

Second — Proposed location of the bank. 

Third — Amount of capital and number of shares. 

Fourth — Name, residence, and number of shares 
owned by each shareholder. 

Fifth — That the signers wish to avail themselves of 
the advantages of the National Bank Act. 

830. Certificate of Officers. — This is an affidavit made 
by the president, cashier, and a majority of the di- 
rectors that they have complied with all the require- 
ments of the law in organizing the association. 

A copy of the certificate of organization, as well 
as the certificate of the officers, must be sent with the 
articles of association to the Controller at Washing- 
ton, D. C. 

831. Must be Natural Persons Persons uniting to 

organize a national bank must be natural persons, 
that is, individuals who can legally hold and con- 
trol property in their own individual right, and not 
corporations or associations of any kind. 

832. Capital Required. — The amount of capital re- 
quired for organizing a national bank depends upon 



BANKS AND BANKING 165 

the population of the city in which the bank is located. 
If the population is less than 3,000 the minimum 
capital is $25,000 ; if it is from 3,000 to 6,000 the min- 
imum capital is $50,000; of from 6,000 to 50,000 pop- 
ulation, the capital must be $100,000; if the popula- 
tion is over 50,000 the capital must be $200,000 or 
more. 

833. Shares of Stock. — The capital stock of each 
national bank shall be divided into shares of $100 
each and be transferable on the books of the bank as 
prescribed in its by-laws. Every person becoming a 
shareholder by transfer shall succeed to all rights and 
liabilities of the prior holder of such shares. 

The liability of each stockholder is double the 
amount of his shares, therefore if Mr. A owns stock in 
a national bank amounting to $5,000 he would, in case 
the bank failed, not only lose the entire amount in- 
vested, but would be liable for the payment of $5,000 
more. 

83 1. Payment of Stock. — At least 50 per cent of the 
capital stock of every association must be paid in be- 
fore it shall be authorized to commence business, and 
the balance may be paid in five equal monthly 
installments. No certificate of stock should be is- 
sued until the shareholder has fully paid for his 
shares. 

30 



466 BANKS AND BANKING 

835. Directors. — The management of a national 
bank is intrusted to a board of directors consisting of 
five members who are chosen from among the stock- 
holders. 

Each one must own at least ten shares of stock in 
the bank, such stock not being hypothecated or in any 
way pledged as security for a loan or debt, and in case 
a director, after being elected, disposes of his stock 
he loses at once his right to act as a member of the 
board. 

No one can become a director who is not a citizen 
of the United States, and at least three-fourths of 
the members of the board must have resided in the 
state or territory in which the bank is located for one 
year or more preceding their election, and must be 
residents therein during their continuance in office. 

836. Election of Directors. — In electing directors and 
in deciding all questions coming before a meeting of 
stockholders, each person is entitled to one vote on 
each share of stock held by him. If a shareholder 
can not be present personally he may vote by proxy 
duly authorized in writing. No officer, clerk, or other 
person connected with, or employed in the bank 
can act as proxy, and no shareholder who is delin- 
quent in the payments on his shares is entitled to 
vote. 



BANKS AND BANKING 467 

837. Cumulative Voting. — Cumulative voting, which 
is allowed by the laws of several states, is not permis- 
sible in national banks. To illustrate, if Mr. A owns 
ten shares of stock, and five directors are to be elected, 
under the cumulative method he could cast ten votes 
for each of five candidates, or fifty votes for one 
candidate; but under the ordinary method he is enti- 
tled only to cast ten votes for each. 

838. Deposit of Bonds. — National banks are re- 
quired to deposit with the United States Treasurer, 
United States registered interest-bearing bonds as se- 
curity for the redemption of the circulating notes 
issued by the bank. 

If the bank's capital is f 150,000 or under, it must 
deposit at least one-fourth the amount of its capital 
in bonds, and if its capital exceeds $150,000, not less 
than f 50,000 in bonds must be deposited. These bonds 
may be purchased in the market and they must be as- 
signed to the United States treasurer. 

The bank is entitled to the interest on the bonds 
deposited, and the Treasurer remits the same by check 
as soon as it is due. 

839. Circulating Notes. — A national bank is en- 
titled to circulating notes equal to the par value of the 
bonds deposited, which must not exceed the amount 
of its capital stock. The act of March 14, 1900, im- 



468 BANKS AND BANKING 

poses an annual tax of one-half of 1 per cent npon the 
average amount of notes in circulation which are se- 
cured by two per cent bonds issued under the provi- 
sions of the act. Circulating notes secured by all 
other classes of bonds are subject to an annual tax of 
1 per cent. 

National banks are not compelled to issue circulat- 
ing notes, but in any event the bonds must be depos- 
ited as above described. 

840. Denomination and Expense of Notes. — The gov- 
ernment bears the expense of the paper and printing 
of the circulating notes furnished to national banks;, 
but the banks themselves pay for the engraving. 

The notes are now issued in denominations of $5, 
$10, $20, $50, and $100, but a bank is not allowed to 
have more than one-third of its circulation in the de- 
nomination of $5. 

When the notes are signed by the president and 
cashier of the bank, they circulate freely as money. 

841. Controller's Certificate. — If, after careful ex- 
amination of all the facts in the case, the Controller is 
satisfied that the law has been fully complied with, he 
shall execute and send to the bank a certificate author- 
izing it to begin business. 

842. Redemption Fund. — Every national bank shall 
at all times keep on deposit with the treasury of the 



BANKS AND BANKING 469 

United States a sum equal to 5 per cent of its circu- 
lation, to be held and used for the redemption of its 
circulating notes. 

All notes of national banks worn, defaced, mu- 
tilated, or otherwise unfit for circulation shall, when 
received by any assistant treasurer or any designated 
depositary of the United States, be forwarded to the 
Treasurer of the United States for redemption. They 
are then destroyed and new notes sent to the bank 
issuing them. 

843. Reserve — All national banks located in Chi- 
cago, New York, or St. Louis must keep on hand at all 
times 25 per cent of their entire deposits. These are 
known as central reserve cities, and any city may be 
placed in that list upon request of three-fourths of its 
banks, provided it has a population of 200,000 or 
more. 

National banks located in reserve cities must keep 
a reserve of 25 per cent, but one-half of this may con- 
sist of deposits with other banks in central reserve 
cities. Any city of 50,000 population may become a 
reserve city upon request of three-fourths of its banks. 

National banks not located in reserve cities must 
keep a 15 per cent reserve, and three-fifths of same 
may be deposited in reserve city banks. 

The 5 per cent redemption fund deposited with the 



470 BANKS AND BANKING 

United States Treasurer is counted as a part of the 
reserve in all cases. 

844. Real Estate. — A national banking association 
may purchase, hold, and convey real estate for the fol- 
lowing purposes, and for no others : 

First — Such as shall be necessary for its immediate 
accommodation in the transaction of its business. 

Second — Such as shall be mortgaged to it in good 
faith by way of security for debts previously 
contracted. 

Third — Such as shall be conveyed to it in satisfac- 
tion of debts previously contracted. 

Fourth — Such as shall be purchased at sales under 
judgments, or mortgages held by the bank, or shall 
be purchased to secure debts due it. 

No bank shall hold any real estate longer than five 
years except that which is used in transacting its own 
business. 

845. Examiner. — The Controller appoints the exam- 
iners of national banks, who have the power to make 
thorough examinations into all the affairs of the asso- 
ciation and question any of the officers or agents of 
the bank under oath. 

He makes a full report to the Controller after each 
examination. 

846. Use of •« National. " — Only such associations 



BANKS AND BANKING 471 

as are organized under the National Bank Act are per- 
mitted to use the word "National" as a part of their 
corporate names. A penalty of f 50 is provided for 
each day this offense is repeated. 

847. Extension of Existence. — The law provides that 
all national banks organized shall have the right to 
continue for a period of twenty years from the date of 
their organization certificate, but if application is 
made to the Controller, permission will be given for 
an extension of the corporate existence. 

HINTS TO PATRONS OF A BANK 

1. Make your deposit as early in the day as con- 
venient, as there is usually a rush near the hour of 
closing. 

2. Don't try to hand in your deposit out of your 
regular turn. 

3. When possible, always count your money, en- 
dorse your drafts, make out your deposit ticket, and 
arrange your deposit before going to the bank. 

4. Never hand your money in for deposit until you 
have arranged the bills all one way and right side up. 

5. Do not try to mislead your banker as to your 
financial condition, for in the end it will injure yon 
in his opinion. 

6. Avoid extended conversation with the clerks. 



472 BANKS AND BANKING 

7. Never give checks except out of your own check 
book if it can be avoided. 

8. Never date a check ahead with the understand- 
ing that it is not to be presented until a certain date. 

9. Always consider a check paid as soon as issued, 
and deduct it from your balance. 

10. Keep your check stubs carefully written up, so 
you can tell at a glance the exact amount you have in 
the bank. 

11. Don't send ignorant or stupid messengers to the 
bank to transact your business. 

12. In all your dealings with your banker treat 
him with courtesy and candor. 

13. Don't commit the folly of saying you will guar- 
antee the payment of a paper you have already 
endorsed. 

14. All papers should be endorsed on the back 
across the left end. Any other way will mark you as 
inexperienced. If, however, the first endorsement 
should be on the wrong end all the rest should follow. 

15. Don't think that a bank must continually 
renew or extend your note because you insist that it 
is "perfectly good." The very fact that you can not 
pay it at maturity shows that it is not "perfectly 
good." 






BANKS AND BANKING 473 

16. Never test the generosity of your bank by trying 
to overdraw your account. 

17. Never send your check out of the city for more 
than your balance, expecting to make it good before 
it is presented. Sometimes the telephone or telegraph 
wires are used in such cases. 

18. Don't exchange checks with any one. Your 
bank will know of it sooner than you imagine, and it 
may injure your credit. 

848. Cashing Your Own Check. — It often happens 
that a depositor will have occasion to go to the bank 
and personally draw the money on his own check. 
This is usually done by making the check payable to 
the order of "Cash." The drawer may, of course, 
make it payable to his own name, but in that case he 
will be required to endorse it. 

If the check is for the purchase of a draft, make it 
payable to "New York draft" ; if it is to pay your note 
make it to "bills payable," etc. 

849. Checks Presented After Death. — After a bank 
has knowledge of the death of one of its depositors, it 
is expected to refuse the. payment of his checks, even 
though they were properly executed while the de- 
positor was living. It may often happen, however, 
that the bank will not receive information of the death 
of a customer for some time after his demise, and in 



174 



BANKS AND BANKING 



that case it will not assume any liability in paying 
checks which are properly drawn and endorsed. 

850. Number Checks. — Every depositor who issues 
checks should have the same carefully numbered so 
as to correspond with the number on his check stubs. 
This makes it much easier to verify his account at the 
end of the month. The check stub should be carefully 
filled out every time a check is given so that the de- 
positor may know at a glance the balance he has in the 

bank. 

No. 92. — Back of Wandering Check 

851 



— *i — , 

pay to the Order or the 




PAY TO THE ORDJ 

NICOLLETNATIONAI 

MINNEAPOLIS. MINN. 

Commercial and Savings Bank, 

RACINE, WIS. 
C. K. CASPENTEfl. Cashjcr.. 

W BANK OR BANKER 

JAN ^8 1900 
United States National Bank 

OMAHA. NEB. 
y - B. Caldwell, Cashier. 

PAY TO THE ORDER OF 

Any BANK or BANKER, 
The Wwltet National Bank, 

of MINNEAPOLIS. MINN. 
ERNEST C. BROWN. Cashitr. 



Wandering Checks. 

— Checks which are sent to 
a distant point often pass 
through the hands of many 
institutions before reach- 
ing the bank on which they 
are drawn. 

We present herewith an 
engraving showing the 
back of a check on the 
Grand Island Banking 
Co., of Grand Island, Neb., 
sent to A. P. Burke of 
Racine, Wis. It will be 
seen by the endorsements 
that Mr. Burke cashed the 






BANKS AND BANKING 475 

check with Rockwell and Rupel Co., of Racine, Wis. 
This firm deposited it with the Commercial and Sav- 
ings Bank of its own city, which forwarded it to its 
correspondent, the Nicollet National Bank, of Minne- 
apolis, and it in turn sent it to the United States 
National Bank of Omaha. The Omaha bank sent the 
check to the First National Bank of Grand Island, 
and it took the same to the Grand Island Banking 
Co., where it was paid and charged to the account of 
the drawer. 

852. Kiting Checks. — Sometimes a person who is 
embarrassed on account of lack of funds resorts to 
the expedient of exchanging checks with a friend. In 
this way he can cash his friend's check at once and 
will have until the next day to get the money to make 
his own check good, or if his friend lives in another 
part of the country a week's time may be gained in 
this manner. 

This is called "kiting," and the practice of it is not 
regarded legitimate business; therefore one who fol- 
lows this method will suffer in the opinion of his 
banker and may be requested to withdraw his account. 

853. Bank Statement. — A bank statement is simply 
a balance sheet showing in brief form all the resources 
and liabilities of the institution. 

National banks are required to make a report five 
times each year to the Controller of Currency, the 



476 BANKS AND BANKING 

same to be published in a newspaper in the locality 
where the bank is established. State banks must in 
like manner make reports to the State Banking Board 
according to the local statute. 

These statements are always required for a certain 
date that is past, and they must be sworn to and at- 
tested by at least two of the directors of the bank. 

854. Examine the Statement.: — While much may be 
learned concerning a bank from a careful examina- 
tion of its statement, comparatively little information 
as to its real character can be gotten from a single re- 
port. A large surplus and undivided profits or- 
dinarily indicate a prosperous condition, but the real 
strength or weakness of a bank depends upon the item 
called "Loans and Discounts." This item represents 
all the loans made by the bank, and on the quality of 
these loans hinges the security of the institution. 

A better idea of a bank may be had by comparing 
its successive statements. If they show a decrease in 
the surplus and undivided profits, this would indi- 
cate that the earnings of the bank do not equal the 
expenses, losses, and dividends. 

855. Source of Profit. — Banks make a small profit 
from selling exchange, collecting notes, drafts, inter- 
est on mortgages, bonds, etc., but their principal 
source of gain comes from loaning the money which 



BANKS AND BANKING 177 

is deposited in the banks, and in discounting commer- 
cial paper. 

The bank's outlay consists chiefly of interest paid 
to depositors, salaries, taxes, rent, stationery, postage, 
and other office expenses. 

856 Is Banking Profitable ? — Contrary to general 
belief, banking is not a highly profitable business, and 
when the amount of capital required is taken into con- 
sideration it does not compare favorably in profits 
with many lines of merchandising and manufacturing. 

If a bank is wisely and carefully managed it will 
generally prove a safe investment, but it requires 
much time, tact, discretion, and the soundest business 
judgment to make it yield more than a very moderate 
profit. 

857. Deposits. — If a bank hopes to be successful it 
must have large deposits, for in most cases it could 
earn no more than running expenses by lending its 
own capital stock. These deposits may come from in- 
dividual firms or corporations, or from other bankers 
who are located in smaller cities. 

If a bank has deposits amounting to $300,000 there 
will of course be a large sum drawn out each day, but 
if one person draws out money another will make a 
deposit, so the balance will not vary more than one- 
thirtieth part of the Avhole from day to day. It 



478 BANKS AND BANKING 

would therefore be perfectly safe for the bank to loan 
out 80 per cent of the regular deposits, or f 240,000. It 
would no doubt be difficult to keep the whole amount 
loaned out all the time, and the average for the year 
would perhaps not exceed $180,000. When it is re- 
membered that interest is paid on much of this de- 
posit, and that the expenses of the bank require the 
income from the capital stock, it will be seen that the 
dividends must of necessity be small. 

858. Opening an Account. — Banks do not as a rule 
care to open accounts with strangers, and it would be 
best if you are unknown at the bank to take some one 
along who can introduce you to the cashier. 

859. Signature Book. — If everything is satisfactory, 
you will be required to write your name in the signa- 
ture book, and in doing this you should use the same 
style of signature you expect to employ in signing all 
your checks. Opposite your name the cashier enters 
your address, occupation, and name of the person by 
whom you were introduced. Many banks require you 
to place your signature also on a card which is kept 
in an alphabetically arranged case for easy reference. 
If an account is to be opened by a partnership or firm, 
and more than one person is to have the right to draw 
checks, a signature must be given in the handwriting 
of each one who has authority to sign the checks. 





V. I\ • Cy n<r\^^JtuOL^^^J 



^^c^3^^^c^^< 



480 BANKS AND BANKING 

Every person should adopt one style of writing his 
name and adhere strictly to it. He should aim at a 
plain, simple style that can be easily written and 
easily read. 

We give herewith a page of excellent signatures by 
a few Grand Island business men. They are not pre- 
sented as models of fine penmanship, but are given as 
good, every-day business signatures which show the 
individuality of the writers. 

A business man's signature soon becomes as fa- 
miliar in a community as his face, and one always 
imagines that he can see a reflection of the writer's 
well known characteristics in the style of his 
penmanship. 

860. Checks and Deposit Tickets. — Banks furnish to 
their customers blank checks, deposit tickets, and pass 
book without cost. Eegular depositors should care- 
fully fill out their deposit tickets before going to the 
bank. All checks or drafts should be listed sepa- 
rately, giving name of bank on which each local check 
is drawn, and the name of the city on which all outside 
checks are drawn. For correct form of drawing check 
and fuller discussion of same see page 115. 

861. Pass Book — Your pass book is the only re- 
ceipt you have for the money you have deposited in 
the bank, and* it should be handed in with each de- 






BANKS AND BANKING 



481 



No. 94. — Form of Deposit Ticket. 



DEPOSITED WIT! 

ISLAND 




SPECIFY THE BANKS ON WHICH CHECKS ARE DRAWN. 



DOLLARS 



CURRENCY 
SILVER - 
GOLD . - 



ras° 

) 05 



posit so the 
amount may be 
entered in it. 

If you make a 
deposit at any 
time when you 
have not your 
pass book with 
you, fill out two 
deposit tickets 
and the teller 
will sign one of 
them, mark it 
"duplicate," and 
return the same 
to you as a re- 
ceipt. 

At the last of each month you should hand in your 
pass book to have it balanced, and in a few days it 
will be returned to you with all your canceled checks. 



JM. 
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(DmU. 



f/3 
ft 

7l> 



is- 

10 




31 



482 BANKS AND BANKING 

BANKS AND BANKING 

REVIEW QUESTIONS 

What is the principal business of a bank? 

What were they originally intended for? 

Are banks of ancient origin? 

Who were the first to practice banking? 

What method did the Bank of Venice inaugurate? 

Describe the Bank of England. 

What was the first authorized bank in the United 
States? 

Was the government interested in the Bank of 
North America? 

Is it still in existence? 

Describe the Bank of the United States. 

Who was the chief promoter of this bank? 

What interest had the government in it? 

Why was its charter not renewed? 

What effect did its dissolution have upon the bank- 
ing business? 

Describe the Second Bank of the United States. 

How were the state banks affected by the news that 
Washington was taken by the British? 

Was the government interested in the Second Bank 
of the United States? 

Why was its charter not renewed? 









BANKS AND BANKING 483 

Who were the principal contestants in the great 
bank war? 

Define wildcat banks. 

How were their notes secured? 

When and how was the state bank circulation 
driven out? 

Mention some of the commercial benefits which so- 
ciety derives from the establishment of banks. 

What of the moral influence of banks? 

Into what three classes are banks divided as to their 
organization? 

Define a national bank. 

Define a state bank. 

Define a private bank. 

Is one class stronger or safer than another? 

What was the object of the National Bank Act? 

What are the duties of the Controller of Currency? 

What is the first step necessary in organizing a 
national bank? 

What are articles of association? 

How many people are required to organize a na- 
tional bank? 

What is a certificate of organization? 

What is a certificate of officers? 

May corporations or associations assist in organiz- 
ing a national bank? 



484 BANKS AND BANKING 

What amount of capital is required? 

What is the amount of each share? 

What is the liability of shareowners? 

When may the stock be paid for? 

Who are the directors? 

Who may become a director? 

How do the shareholders vote? 

May they vote by proxy, and who may act as proxy? 

Is cumulative voting allowed? 

For what reason are national banks required to de- 
posit bonds with the United States Treasurer? 

Does the bank receive the interest on same? 

Is the bank given circulating notes equal to the face 
value of the bonds? 

Are the circulating notes taxed? 

In what denominations are these notes issued? 

What is the Controller's certificate? 

For what purpose is a redemption fund deposited 
with Treasurer? 

What is done with old or damaged notes? 

What is meant by the bank's reserve? 

What reserve is required of banks in central reserve 
cities? 

What reserve is required of banks in reserve cities? 

What reserve is required of banks not located in re- 
serve cities? 









BANKS AND BANKING 485 

For what purposes are national banks allowed to 
hold real estate? 

Who is a bank examiner? 

May state or private banks use the word "National" 
in their titles? 

May a national bank secure an extension of its cor- 
porate existence? 

When do you make a check payable to "cash" or 
"draft"? 

Are checks paid after the death of the drawer? 

Why are checks numbered? 

What is meant by kiting checks? 

What is a bank statement and how often are they 
made? 

Can you tell anything of the bank's strength by its 
published statements? 

What are the sources of profit in banking? 

Is banking profitable? 



486 THE LAW OF PATENTS 



CHAPTER XXXVII 

THE LAW OF PATENTS 

862. Patent. — A patent is a grant by a government 
to the author of a new and useful invention, or to his 
assigns, of the exclusive right to manufacture and sell 
the thing invented for a specified number of years. 

863. What Hay be Patented.— The Revised Statutes 
of the United States, sec. 4886, describes what may be 
patented in the following language : "Any person who 
has invented or discovered any new and useful art, 
machine, manufacture, or Composition of matter, or 
any new and useful improvement thereof, not known 
or used by others in this country, and not patented or 
described in any printed publication in this or any 
foreign country, before his invention or discovery 
thereof, and not in public use or on sale for more than 
two years prior to his application, unless the same is 
proved to have been abandoned, may, upon payment 
of the fees required by law, and other due proceedings 
had, obtain a patent therefor." 

864. May Employ Attorney. — While the applicant for 
a patent may, if he prefers, conduct the correspond- 
ence and handle the business personally, it will gen- 






THE LAW OF PATENTS 4 ST 

erally be found more satisfactory and secure better 
results if a skilful patent attorney be employed. 

865. riust be Accurate. — The greatest care should be 
exercised to see that the description of the invention be 
clear and accurate, as the right to surrender and reis- 
sue a patent on account of defects of this character 
has, by recent decision, been greatly limited. 

866. The Commissioner of Patents. — All correspond- 
ence and communications of any kind intended for 
the patent office must be addressed to the "Commis- 
sioner of Patents." If addressed to any other officer, 
they will generally be returned to the writer. 

867. Power of Attorney. — If an attorney be em- 
ployed to secure the patent, the patent office will con- 
duct the correspondence with him, provided a power 
of attorney be given him by the inventor or applicant. 
This power of attorney must be filed with the Com- 
missioner of Patents. 

When the matter has been placed in the hands of an 
attorney, the applicant's direct communication with 
the patent office ceases, as the office will not generally 
carry on a correspondence with two different parties 
regarding the same patent. 

868. Attendance Not Necessary. — It is not necessary 
for the applicant or inventor to go personally to 
the patent office, but all the business may be con- 



488 THE LAW OF PATENTS 

ducted by correspondence. Care should be exercised 
to see that postage, express charges, or freight be fully 
prepaid on everything sent to the Commissioner of 
Patents, for otherwise it will be refused by him. 

869. Dsath of inventor. — In case of the death of the 
inventor, his administrator or legal representative 
may make application and secure the patent. 

870. Patent Office Open to Inventor. — The patent of- 
fice with its models and records is open to the inspec- 
tion of the inventor or his attorney, and an applicant 
is often surprised upon investigation to find that one 
or more patents have already been granted on inven- 
tions similar, and perhaps better than his own. 

871. Caveat. — A caveat (ka've-at) is a notice filed 
in the patent office by one who is engaged upon an in- 
vention. This entitles the inventor to notice of any 
application for a patent for an interfering invention 
during the year while he is perfecting his own. 

872. Secrecy of Caveat and Application. — Absolute 
secrecy is observed by the officials in charge of the 
patent office on all matters pertaining to caveats, ap- 
plications for patents, applications for the reissue of 
patents, etc.; but after the patent has been granted, 
the specifications, models, and all papers relating 
thereto may be freely inspected, and copies of any of 



THE LAW OF PATENTS 4S9 

the documents will be furnished to any person 
interested. 

873. Assignment of Patents. -If the whole interest 
in an invention or patent be properly assigned and 
the assignment recorded with the Commissioner, be- 
fore the date of the payment of the final fee, the patent 
will be issued to the assignee; or if a part interest be 
assigned and recorded in like manner, the patent will 
be issued jointly to the assignee and inventor. 

The assignment must describe the application fully, 
giving date, serial number, date of filing same, or at 
least sufficient description so there can be no doubt as 
to the application referred to. 

874. Foreign Patents. — The fact that an invention 
has been patented in a foreign country does not pro- 
hibit the inventor from taking out a patent in the 
United States, except in cases where the invention has 
been in public use in the United States for more thau 
two years prior to the date of making application. 

If a patent has been taken out in any foreign coun- 
try on an invention, and it is afterwards patented in 
this country, the United States patent will not run 
longer than the one in the foreign country. 

875. Application for Patent. — The application for 
patent must conform to the following regulations : 

1. It must be written in the English language. 



490 THE LAW OF PATENTS 

2. It must be made by the inventor himself if alive, 
even if the patent is to be issued to an assignee, but if 
he be dead it may be made by his executor or 
administrator. 

3. A complete application consists of a petition, 
specification and oath, drawings, model, or specimens 
when required, and the first fee of f 15. 

4. All applications must be complete before they 
will be placed on file for examination. 

5. Two years only will be allowed after filing peti- 
tion for completing application, unless the delay can 
be proved to be unavoidable. 

876. The Specification. — The specification is a care- 
fully written document giving a full and complete de- 
scription of the invention or discovery, and also 
setting forth in the plainest and most concise lan- 
guage the exact manner in which the same may be 
constructed or compounded. 

The rules of the patent office recommend that the 
following order of arrangement should be observed in 
writing out specifications. 

1. Preamble giving name and residence of appli- 
cant, the title of the invention, and if the invention 
has been patented in any country, a statement of the 
country or countries in which it has been patented, 
and the date and number of such patent. 



THE LAW OF PATENTS 491 

2. General statement of the object and nature of 
the invention. 

3. Brief description of the drawings, if any, show- 
ing what each view represents. 

4. Detailed description, explaining fully the alleged 
invention and the manner of constructing, practicing, 
operating, and using it. 

5. Claim or claims. 

6. Signature of inventor. 

7. Signature of two witnesses. 

877. Reissue. — When, on account of error or over- 
sight, the specification is defective or insufficient, a 
reissue of the patent is granted. 

A reissued patent expires at the same date the orig- 
inal patent would have expired. 

878. Drawings. — Whenever the nature of the inven- 
tion or discovery admits of being illustrated by draw- 
ings, the applicant for a patent is required to furnish 
them. Each drawing must be signed by the inventor 
or his legal representative, and two persons must also 
sign the same as witnesses. 

879. Drawings Uniform. — The rules of the patent 
office require that all drawings be made with black 
India ink and pure white paper, corresponding in 
thickness to what is called "Three Sheet Bristol 
Board," and that the size of the sheets be exactly 



192 THE LAW OF PATENTS 

10x15 inches. One inch from each edge a single 
marginal line to be drawn, leaving the "sight" just 
8x13 inches. 

No marks, signatures, or writing of any kind are 
permitted on this margin. The signature of the in- 
ventor should be placed at the lower right-hand corner 
and the witnesses at the lower left-hand corner. 

880. riodels. — It is no longer necessary to send a 
model of the invention with the application, but if the 
examiner should think it advisable the applicant will 
be notified to furnish one. 

881. Examination. — Applications are classified and 
taken up for examination as far as practicable in their 
regular order, but if the invention is thought to be of 
special importance to some branch of public service, 
it will be examined immediately at the request of the 
head of any of the departments of the government. 

882. Duration of Patent. — Patents for designs such 
as busts, statues, pictures, patterns, designs for print- 
ing silks or other fabrics, etc., may be granted for a 
term of three and one-half years, or seven years, or 
fourteen years, as the applicant may desire, the fee 
charged increasing with length of time for which the 
patent is granted. 

All other patents are granted for seventeen years, 
except where a patent has previously been granted in 






THE LAW OF PATENTS 493 

some other country, and in that ease the term of patent 
will expire at the same date of the expiration of the 
foreign patent, provided it does not exceed seventeen 
years. 

No patent now in force can be extended except by 
special act of Congress. 

883. Final Fee. — The final fee must be paid within 
six months of the time the patent is allowed and 
notice sent, otherwise the patent will be withheld and 
the invention become public property, unless a new 
application be filed within two years of the allowance 
of the original application. 



494 THE LAW OF PATENTS 

THE LAW OF PATENTS 

REVIEW QUESTIONS 

What is a patent? 

What may be patented? 

May an inventor apply for a patent through an 
attorney? 

What care must be taken in describing patent? 

With whom is the correspondence conducted? 

Is a power of attorney necessary if you have an- 
other person apply for the patent? 

May an inventor and his attorney both carry on a 
correspondence with the patent office concerning the 
same patent? 

Is it necessary for the inventor to go to the patent 
office personally? 

Who may apply for patent in case of death of th3 
inventor? 

Is the patent office open for inspection? 

What is a caveat (ka-ve-at ) ? 

Is the caveat and application made public? 

After a patent is granted, may any one examine the 
specification, models, etc., at the patent office? 

May an invention be assigned before the patent is 
granted? 

Must the assignment be recorded at the paten; 
office? 



THE LAW OF PATENTS 495 

May an invention be patented in foreign countries 
as well as in the United States? 

Of what does an application for a patent consist? 

What does the specification contain? 

What is meant by the reissue of patent? 

Must the drawing be uniform? 

Are models necessary? 

When is an application examined? 

For what length of time is a patent for design 
granted? 

For what length of time are other patents granted? 

Must a fee accompany every application for patent? 

Must all fees be paid in advance? 

What is the final fee? 

If it be not paid within six months of notice, what 
is the effect? 



496 COPYRIGHT LAWS 

CHAPTER XXXVIII 

DIRECTIONS FOR REGISTERING COPYRIGHTS 

884. Definition of Copyright. — A copyright is the 
exclusive privilege which the law gives an author for 
a limited time to publish, sell, and control an intel- 
lectual production, the object being to encourage the 
useful arts and promote the progress of science. 

The following directions are condensed from the 
copyright laws recently issued from the office of the 
Librarian of Congress : 

885. No Postage Required. — Do not send any stamps 
or stamped envelopes for return postage, as all imr'l 
matter sent from the copyright office addressed to any 
part of the United States (including Alaska), Can- 
ada, and Mexico is carried without postage, under 
government frank. 

886. State Nationality of Author. — It is not neces- 
sary to state the name of the author if it is desired to 
keep the book or other article anonymous, but the 
nationality of the author of any literary, musical, or 
artistic work is required in order to determine the fee 
to be charged, and also to determine whether the 
article, in the case of a foreign work, is the produc- 
tion of a citizen of some country to the subjects of 



COPYRIGHT LAWS 497 

which country the privilege of copyright in the United 
States has been extended. 

887. Name of Claimant.- — An entry of copyright 
claim can not be made unless the application for such 
entry contains a distinct statement in whose name the 
claim of copyright is to be registered. The applica- 
tion must distinctly state the full name and address 
of the person who claims to be the proprietor of the 
copyright. 

888. NoNom de Plume. — No entry can be made under 
a fictitious name, such as a nom de plume or psuedo- 
nym (su'-do-nim). The real name of the claimant 
should be stated. If an author desires to preserve his 
anonymity (an-6-nim'-i-ti) and to avoid putting his 
name on record, he should arrange to have some other 
person make the copyright entry in such person's 
name as "proprietor/' under an arrangement with 
himself as author. 

889. Firm or Corporation. — Entry can be made in 
the name of a firm, a corporation, or trustee, or in 
two or more names as joint authors or proprietors. 

890. Filing Title. — The first step to be taken in order 
to secure copyright protection, according to law, is the 
transmission to the office of the Librarian of Congress 
a printed copy of the title of the book or other article. 
The copying of such a title page into the record books 

32 



498 COPYRIGHT LAWS 

of the copyright office becomes the recording of the 
claim of copyright. 

891. Formal Application. — Formal application for 
copyright should be made by filling out the applica- 
tion blank, which, together with full instructions, is 
furnished upon request, and mailing it with the re- 
quired fee, addressed, "The Librarian of Congress, 
Copyright Office, Library of Congress, Washington, 
D. C." 

892. Original Works of Art. — In the case of a paint- 
ing, drawing, statuary, or a model or design for a 
work of the fine arts, in lieu of, or in addition to the 
title, if there is one, a description is required to be 
sent, and a photograph to be filed. This photograph is 
required for identification, and should be a photo- 
graph taken directly from the work of art, and not a 
print, half-tone, photogravure, or any other kind of 
reproduction. 

893. Works of Several Volumes. — In the case of 
works published in parts or volumes, the title of each 
part or volume should be recorded as if an independ- 
ent work, but in newspapers, magazines, or other peri- 
odical publications, the title for each number, dis- 
tinguished by volume, number, and date, is required 
to be filed as if it were a distinct work. 

894. Who May Secure Copyi ight. — The author of 



COPYRIGHT LAWS 499 

any literature, musical, dramatic, or artistic work, 
who is a citizen of the United States or a subject of 
any country to whose citizens the United States has 
extended the benefits of copyright, is privileged to ob-. 
tain copyright in the United States. 

895. Assigns of Author. — Any person to whom an 
author, who has the privilege of copyright in the 
United States, has transferred his copyright can apply 
for and obtain copyright entry as a "proprietor." 

896. Translater, Compiler, etc. — A translator, ed- 
itor, compiler, dramatizer, or abridger of a work may, 
under the copyright law, be considered as the author 
of the translation, the compilation, the dramatization, 
or the abridgement, and can apply for and obtain 
copyright registration. 

897. Deposit of Two Copies. — The second step re- 
quired to be taken to complete a copyright is the 
deposit of two copies of the article for which the title 
has been recorded. This should be made before the 
publication or distribution of any copies of the article, 
as the law explicitly provides for this. 

898. Penalty for Noncompliance. — Unless this de- 
posit of two copies is made, a penalty of $25 is 
incurred. 

899. Best Edition. — Two copies are required, and 
they must be complete copies of the best edition. The 



500 COPYRIGHT LAWS 

explicit words of the Kevised Statutes (sec. 4959) are : 
"Two complete printed copies thereof, of the best edi- 
tion issued." 

900. riust be Hade in the United States. — In the case 
of books, the copies must be printed from type set 
within the limits of the United States. Photographs 
must be prints from negatives made in the United 
States, and chromos and lithographs from drawings 
on stone or transfers therefrom made in the United 
States. 

901. Serials. — When a book is published serially in 
a periodical, two copies of each number of the maga- 
zine containing it should be deposited, and if after- 
wards published as a complete work, then copies of the 
completed book should be deposited. 

902. New Edition. — In the case of a new edition the 
law requires the deposit of one copy. 

903. Penalty Labels. — These articles for copyright 
deposits can be sent free by mail (without limit of 
weight), if the printed penalty labels furnished upon 
request by the Eegister of Copyrights are used. 

904. Notice of Copyright. — The third step requisite 
to secure any valid copyright is the printing of the 
claim of copyright on each copy of the article pro- 
tected. No copyright can be protected against in- 



COPYRIGHT LAWS 501 

fringement unless the notice prescribed by law is in- 
serted in every copy produced. 

905. Form of Notice. — The wording of the notice is 
determined by the copyright statute, and must be one 
of these two forms : 

a. Entered according to Act of Congress, in the year 
(here insert date) by (here insert full name of claim- 
ant) in the office of the Librarian of Congress, at 
Washington, or 

b. Copyright (here insert year) by (here insert 
full name of claimant). 

906. Notice — Where Printed. — In the case of a book, 
the law prescribes that this notice shall be printed on 
the title page, or the page immediately following ; and 
in the case of other articles copyrighted the notice 
must be inscribed on some visible portion thereof. 

907. Penalty for False Notice. —The law imposes a 
penalty of $100 upon any person who shall insert the 
notice of copyright, or words of the same purport, upon 
any book or other article which lias not been copy- 
righted, whether such article be subject to copyright 
or otherwise ; or who shall knowingly issue or sell any 
article bearing a notice of United States copyright 
which has not been copyrighted in the United States. 

908. Copyright Fee. — The copyright fees prescribed 
by law are as follows : For recording each title of a 



502 COPYRIGHT LAWS 

book, or other article, which is the production of a 
citizen or resident of the United States, the charge is 
fifty cents. If a certificate of copyright (i. e., a cer- 
tificate of the entry of the title) is desired, there is an 
additional charge of fifty cents, or $1 in all. 

909. Fee for Foreigner. — For recording each title of 
a book or other work, the production of a person not 
a citizen or resident of the United States, the charge 
is $1. This fee of $1 is required to be paid for record- 
ing the title of every work whose original author or 
producer is "a person not a citizen or resident of the 
United States/' whether the proprietor of the copy- 
right is or is not a citizen or resident of the United 
States. 

910. Receipt for Deposit. — For a certified receipt 
for the deposit of the two copies required by law, the 
charge is fifty cents. 

911. Certificate of Copyright. — It is optional with 
the copyright applicant to pay the fee for a certificate 
at the time of entry of title. A certificate of copy- 
right is convenient prima facie evidence of copyright 
entry, but this document can be had in the form of a 
certified copy of record at any time subsequent to the 
registration of title. 

912. Term of Copyright. — The first term of copy- 
right is for twenty-eight years from the time of re- 



COPYRIGHT LAWS 503 

cording the title in the copyright office. The title is 
recorded on the day of its receipt in the copyright of- 
fice, in accordance with the provisions of the copy- 
right statutes, and no date prior to the day can be 
given to the entry title. 

913. Renewal. — Within six months before the expi- 
ration of the first term of copyright, the copyright 
statutes provide (Kevised Statutes, sec. 4954) that the 
author, if he be still living, or his widow or children, 
if he be dead, may have the copyright continued for a 
further term of fourteen years. This renewal requires 
the filing of the title a second time, and the deposit of 
the two copies, exactly the same as in the case of an 
original copyright. 

914. Assignment of Copyright. — Copyrights are as- 
signable in law by an instrument of writing. This 
should state the names of the assignee and the as- 
signor, the title of the book or other article assigned, 
should contain a statement of "valuable considera- 
tion," and should be dated. Every assignment must 
be recorded in the copyright office within sixty days 
after its execution, "in default of which it shall be 
void as against any subsequent purchaser or mort- 
gagee for a valuable consideration, without notice.'' 
(Revised Statutes, sec. 4955.) 

915. Dramatization.— The act of March 3, 1891, pro- 



504 COPYRIGHT LAWS 

vides that "authors or their assigns shall have exclu- 
sive right to dramatize and translate any of their 
works for which copyright shall have been obtained 
under the laws of the United States." 

916. Periodicals. — The general title of a newspaper 
or periodical, apart from the contents, can not be 
registered for protection under the copyright law. 
Each number, therefore, of a periodical should be 
entered by its title, distinguished by a statement of the 
volume, number, and date of the issue. The entry 
of title should precede publication, and two copies of 
each issue should be sent to the Library of Congress, 
at the earliest moment after printing. 

917. International Copyright. — The act of March 3, 
1891, made it possible for foreign authors to obtain 
copyrights in the United States upon the same terms 
as native authors, except that the fee for entry in the 
case of the production of a foreigner is doubled. Con- 
gress, however, distinctly provided that the copyright 
privileges secured by the act should "only apply to a 
citizen or subject of a foreign state or nation when 
such foreign state or nation permits citizens of the 
United States to have the benefit of copyright on sub- 
stantially the same basis as its own citizens. 

918. Not a riember of International Union. — As the 
United States is not a party to the International 



COPYRIGHT LAWS 505 

Copyright Union, copyright protection is not secured 
abroad by virtue of copyright registration in this 
country. Entry of copyright at Washington gives 
protection to the copyright only within the United 
States. 



506 COPYRIGHT LAWS 

COPYRIGHT LAWS 
REVIEW QUESTIONS 

What is a copyright? 

What is its object? 

To whom must all correspondence be addressed? 

Must application state name and nationality of 
author? 

How do you file the title? 

Must each volume of a set be copyrighted? 

Who may secure a copyright? 

May copyright be assigned? 

How many copies must be deposited? 

What is the penalty for failure to send copies for 
deposit? 

Must notice and date of copyright be printed on 
each article? 

What is the penalty for false notice? 

What are the copyright fees? 

What are the copyright fees for a foreigner? 

For how long does a copyright run? 

For how long may it be renewed? 

To copyright periodicals, must a copy of each issue 
be sent? 

What is international copyright? 



COMMERCIAL CREDITS 507 

CHAPTER XXXIX 

COMMERCIAL CREDITS 

919. It is said that more than 90 per cent of all 
financial transactions are based upon credit in some 
form, and this being the case, a short chapter on the 
subject of Commercial Credits should, we believe, 
have a place in a work of this character. 

It is hoped that, brief as this outline is, it may be 
found to contain some useful suggestions to both 
debtor and creditor. 

920. Importance. — To get an idea of the importance 
of this subject, let us suppose that Mr. A comes to 
you to borrow $100 at 6 per cent interest for sixty 
days, the interest on same being $1. 

The use of the money is worth the price charged 
for it, and you can not afford to take any chances 
whatever on losing the principal; for if it is paid 
promptly when due, your profit is very small, and in 
case the principal is never paid, you must make one 
hundred more similar loans, each of which must be 
paid with interest, before you will be where you 
started. 

It will therefore be seen if you should lose even one 
such loan out of each one hundred, you will receive 



508 COMMERCIAL CREDITS 

absolutely nothing for your work and nothing for the 
use of your money. 

921. Careless Merchants. — In selling goods, making 
a loan, or allowing an individual to become indebted 
to you in any business way, you must consider first of 
all what the probabilities are of getting your money. 

A careless merchant often gives too little attention 
to this matter, and when he sees an opportunity to sell 
goods for twelve dollars which cost him ten, he thinks 
only of the two dollars profit. 

If nothing more than the profit was risked, he could 
well afford to take some chance, but if the bill is never 
paid he loses his two dollars profit, and along with it 
goes the cost of the goods, or ten dollars more. 

922. No Infallible Rule. — Much may be learned by 
a careful study of the subject, but no rule can be laid 
down which will insure absolute safety, for the most 
careful and conservative credit man will have an oc- 
casional loss. 

This does not change the fact, however, that a very 
large proportion of losses are due to carelessness, ig- 
norance, and lack of sound business judgment on the 
part of the merchant. 

923. On What is Credit Based ? — In estimating the 
amount of credit to which an individual is entitled, 
many questions must be taken into consideration, 



COMMERCIAL CREDITS 509 

such as honesty, ability, character, education, capital, 
kind of business, experience, industry, habits, etc. 

It will not be well to rely wholly upon any one of 
these factors, but the resultant of them all is the only 
safe measure of an individual's credit. 

We will notice briefly some of the more important 
elements in commercial credit. 

924. Honesty. — There are three kinds of honest 
people in the world, viz. : those who believe that virtue 
is its own reward ; those who are honest to avoid pun- 
ishment; and those who think that honesty is the best 
policy. 

The two classes last mentioned can not be said to 
take a very broad view of the moral aspect of the 
question, but to be honest as a matter of policy is cer- 
tainly much better than to be dishonest. 

In the business world no questions are asked as to 
the motives which prompt one to honesty — so long as 
the integrity, reliability, and trustworthiness of the 
individual are firmly established. 

It may be fairly stated that most business men, for 
one reason or another, are honest, and it is difficult to 
understand how a strong, intelligent individual can 
bring himself to believe that he can make dishonesty 
pay, in dollars and cents. 

No one can afford to trust a dishonest person, even 



510 COMMERCIAL CREDITS 

though he has considerable means ; far safer it would 
be to extend credit to a poor man of well known 
integrity. 

Young and inexperienced persons who are really 
honest often make the mistake, when asking for a 
small credit, of dwelling too strongly upon the fact 
that they are "perfectly honest." This method is al- 
most invariably followed by those who are notoriously 
dishonest, and any one who praises his own virtues 
too highly is in danger of being misunderstood. 

We form an estimate of one's honesty (1) from our 
personal knowledge of the individual, (2) from his 
reputation, (3) from his appearance and general 
bearing. 

925. Ability. — Ability in the sense it is here used has 
reference to practical business talent; for even the 
greatest genius can not achieve worldly success with- 
out a knowledge of practical affairs. 

A man of ability must not only know what to do, 
but how to do it. He must be a man of action and 
force as well as thought, if he would push to the front 
and win the prizes of wealth and honor. 

Business ability is largely a matter of development, 
and may be acquired by almost any one of ordinary 
capacity, by diligent study, observation, and experi- 
ence. The real difference between one person and an- 



COMMERCIAL CREDITS 511 

other is not so much in their natural talent as in the 
persistency and determination with which they apply 
themselves to their work. 

Self-respect, self-discipline, and self-control are 
three cardinal points, and should be developed to the 
highest degree possible, for any one who becomes mas- 
ter of himself, who can compel himself to do the thing 
he ought to do, even though it be a disagreeable task, 
has taken a long stride in the direction of practical 
wisdom. 

926. Character. — Character is what you really are, 
while reputation is what the world believes you to be. 
You can not afford to be heedless of your reputation, 
but it is vastly more important that you jealously 
guard the integrity of your character. You can not 
always control what people say of you, but you can so 
live that if they speak evil of you their idle words will 
have no force with those who really know you. 

If, after working hard and doing your very best, 
you fail in business, there are sure to be some hare- 
brained individuals ready to sneer and say unkind 
things of you; if you succeed, these same people, 
moved by jealousy, will lose no opportunity to berate 
you when your back is turned ; but pay no attention to 
this, for your character is an estate which can only be 



512 COMMERCIAL CREDITS 

impaired by your own wilful act, and while it remains 
unblemished you are, in point of fact, unharmed. 

Character is an important element in commercial 
credit, and even when capital is lacking a man of well 
known character will often be trusted for large 
amounts. 

927. Capital. — The matter of capital is of consider- 
able importance in deciding the amount of credit to be 
extended to any one, but it is also very important to 
ascertain how, when, and where the creditor obtained 
his capital. You want to know if it was a gift, a loan, 
an inheritance, or if it was accumulated by the cred- 
itor himself, and if so, how? 

An inexperienced young man may be started up in 
business by a relative, or he may borrow the necessary 
money from a friend, or he may have recently in- 
herited it, but in any of these cases it will be well to 
use great caution as to the amount of credit extended, 
for in the majority of cases he will lose all his money 
before he gets the experience necessary for his success. 

The safest man is one who goes in as employe with 
some good house until he thoroughly learns the busi- 
ness. If made of the right kind of material he can, by 
hard work and strict economy, save enough money in 
a few years to start out for himself in a modest way. 
Such a man, having other qualities favorable, will al- 



COMMERCIAL CREDITS 513 

most invariably succeed, and he is entitled to a liberal 
line of credit, for he has shown in advance that he has 
industry, economy, and ability, all of which are im- 
portant factors in success. 

928. Kind of Business. — Many questions enter into 
the problem of success and failure, but some kinds of 
business are within themselves more hazardous than 
others, and this should be taken into consideration by 
those who are about to enter business, as well as those 
who are called upon to extend credit. 

The following conditions make a business 
profitable : 

1. Large per cent of profit on the goods. 

2. Small expense in the way of clerk hire, rent, ad- 
vertising, postage, delivery, etc. 

3. Demand all seasons of the year. 

4. Cash sales. 

In some kinds of business the profits are very small 
and in others they are large, as, for example, the 
grocery man usually sells on a small margin, and he 
also has a large expense, as the stock requires a large 
room, a good location, considerable help, expense of 
delivery in cities, and he has many losses from bad 
debts; but to offset all this it may be said that his 
goods are staple, and his sales average well every day 
in the year. 

.33 



514 COMMERCIAL CREDITS 

On the other hand a millinery stock sells at a large 
profit with comparatively light expense and small 
losses on credit sales; but the active trade lasts only 
a couple of weeks during each season, and on this 
point the business loses all the advantages gained by 
good profits and low expenses. 

The hardware business also yields a good profit 
where the competition is not too strong, and the same 
may be said of clothing, dry goods, jewelry, and many 
other lines; but unless a person has cultivated to a 
reasonable degree the qualities which bring success, 
his career is likely to be short, no matter what busi- 
ness he enters. 

929. Industry. — Franklin tells us that sloth makes 
all things difficult, but industry all things easy, and 
certain it is that industry is one of the absolutely es- 
sential elements of success. One may have capital, 
honesty, education, moral character, and experience, 
but if he lacks industry there is no room for him in the 
business world. 

Assistants and clerks may do most of the work; but 
the proprietor of any business must do the planning, 
and, further, he must see that his plans are carried 
out. If he takes but little interest he can not expect 
his clerks to show enthusiasm; he must set the pace 
for his entire establishment. Every great concern 



COMMERCIAL CREDITS 515 

bears the stamp and likeness of one man whose force, 
industry, and personality have been the dominating 
influence in its growth. 

A successful man is invariably a worker, and to 
him hard work is his greatest pleasure. Industry, like 
most other things, is largely a matter of habit and 
may be cultivated by any one who thinks it worth his 
while to do so. 

930. Experience. — Every man who expects to en- 
gage in business for himself should first secure a posi- 
tion with some well established house in his line where 
he can master every detail of the work. 

By strict attention he will be able to learn much 
from the mistakes and losses of his employer as well 
as from his successful operations; but if he starts in 
business for himself without experience he will be 
placed at a great disadvantage; he will then have to 
learn by his own mistakes, and this is a long and 
costly road — so long and costly that it is not likely 
his money will last until he reaches the station called 
success. 

A man of experience knows the road, for he has 
been over it many times ; he is a good buyer, is able to 
see ahead, and can often avoid or fortify himself 
against reverses. He has perfect confidence in him- 
self, and the public also has confidence in his ability. 



•~16 COMMERCIAL CREDITS 

All this commands credit, capital, and trade, which 
gives him a great advantage over his inexperienced 
competitor. 

931. Habits. — Every man is a bundle of habits; 
some are good, some are bad. When you know a man's 
habits you know him. Metastasio ( ma-tas-taze-6 ) 
the Italian poet, said : "All is habit in mankind, even 
virtue itself." 

Among the habits which count most for good from a 
business point of view may be mentioned industry, 
temperance, economy, promptness, method, accuracy, 
politeness, and observation. Men who possess these 
virtues in a reasonable degree usually succeed in what 
they undertake to do. 

It is well to bear in mind that good habits such as 
have been mentioned are not formed by a sudden reso- 
lution, but are the growth of years. They may be well 
likened to letters cut on the bark of a tree Avhich widen 
out as the years go by. On the other hand, bad habits, 
like weeds and thistles, seem to spring up quickly and 
make rapid growth without the least encouragement. 
They are equally adapted to the poorest land or the 
richest soil. They thrive without rain, sunshine, or 
cultivation. The more deplorable the habit, the 
deeper it sinks its fangs into the victim, and greater 
effort is required to shake it off. 






COMMERCIAL CREDITS 517 

Men who have acquired the habit of drinking, 
gambling, etc., are entitled to our sympathy, but 
should be given only limited credit, for such habits 
demand their time and attention as well as their 
money. 

It proves nothing to point to an occasional person 
of bad habits who has accumulated wealth, for, while 
one succeeds, thousands go down to utter ruin by fol- 
lowing this course, and it may be safely said that the 
young man who acquires the habit of intemperance, 
extravagance, or licentious practices of any kind will 
very soon lose all interest in his business and end in 
failure. 

932. Education. — Never before in the history of our 
country was commercial education so important as it 
is to-day. Business is now reduced to a complete sys- 
tem, and those who start without a practical educa- 
tion are sure to work at a great disadvantage ; in fact 
it is next to impossible, to-day, for a young person to 
secure a position with a well established firm unless 
he has taken a special course of training preparatory 
for the work. 

A thorough business education does not consist 
alone in the mastery of a stipulated list of subjects, 
but the successful student must be trained to ac- 
curacy; he must be systematic, he must be quick to 



518 COMMERCIAL CREDITS 

think and quick to act; he must have a thorough un- 
derstanding* of the importance of honesty, character, 
industry, habits, etc. ; he must have some independ- 
ence, must have a mind of his own and use it, for he 
who switches about like a weather vane, always be- 
lieving with the man who argues the case last, will be 
short lived when he enters the arena of business. 

The great value of a liberal education should not be 
overlooked, and every young man and woman who has 
a taste for higher education should, if possible, spend 
four years in some good university; but it should be 
remembered that no amount of general education will 
take the place of a technical business training. 

A good business education is the surest safeguard 
against dishonesty; it gives its possessor a practical 
turn; it sharpens his talents; it gives him an expert- 
ness in business affairs which enables him to get 
money honestly, with comparative ease, thus remov- 
ing from him the temptation to adopt dishonest 
methods. 

933. Married or Single. — It may seem strange at 
first thought that this question should have any bear- 
ing upon one's credit, but it certainly has, and, every- 
thing else being equal, a married man will be given 
the preference over a single man. 

Of course the mere fact that a person is married 



COMMERCIAL CREDITS 519 

does not in itself justify one in giving him credit, but, 
assuming that he has commendable qualities as a man, 
the fact of his domestic responsibilities would have a 
tendency to give him greater stability in the eyes of 
the community, and cause him to be regarded more 
in the light of a permanent fixture. 

A married man with others depending upon him is 
more inclined to be economical and ambitious and is 
more watchful to maintain the integrity of his good 
name. 

A single man may be just as strong, just as honest, 
and just as capable, but he is not surrounded by the 
conditions which spur him on to his very best efforts. 
He is more likely to rest upon his oars. He has no one 
depending upon him and is likely to become extrava- 
gant. If he makes a serious mistake, no one's reputa- 
tion but his own will suffer. He is more likely to fall 
into bad company and bad habits, and if he becomes 
dissatisfied or involved in any difficulty, he has no ties 
to hinder him, and he can, if he chooses, step on the 
train and leave the country without a moment's 
notice. 

It should not be inferred from what has been said 
that a young man can improve his commercial credit 
by marriage when his circumstances are not such as to 
justify the step, for in case of an ill-advised union the 



520 COMMERCIAL CREDITS 

credit would be injured instead of helped. It 
might be well to remember also that the character of 
the wife, and her tendency to economy or extrava- 
gance, all have an important influence upon the hus- 
band's credit. 

MERCANTILE AGENCIES 

934. Definition. — Mercantile agencies are com- 
panies which make a business of investigating the 
standing, credit, and financial condition of men en- 
gaged in all lines of business. The two most prom- 
inent companies of this kind are Bradstreet's and R. 
G. Dun & Co., each of which has branch offices in all 
of the principal cities in the United States and 
Canada. 

935. Object. — The object of these commercial 
agencies is to furnish each of their subscribers with 
an estimate of the credit and financial strength of all 
the business men in the state or states where the sub- 
scribers do business, and to furnish them a detailed 
statement concerning any individual upon request. 

936. Of What Reports Consist. — A large book for ref- 
erence is compiled and revised every six months by the 
company, containing the names of every city, town, 
and village in the United States. Under these head- 
ings are listed the names of all persons, corporations, 
companies, etc., engaged in any kind of business. Op- 



COMMERCIAL CREDITS 521 

posite the names are placed certain letters and char- 
acters which indicate the kind of business, the 
estimated financial worth, and the reputation for 
promptness, honesty, and fair dealing of the person or 
concern. 

When a subscriber desires more complete informa- 
tion in regard to a particular person, the company 
furnishes the same. These special reports give a full 
history of his character, honesty, ability, industry, 
habits, education, experience, capital, liabilities, etc. 

937. Complete Record. — These agencies keep a com- 
plete record of every business man, and can usually 
give a reasonably accurate estimate of the amount of 
credit each one is entitled to. Of course they can 
not always ascertain the whole truth as to the finan- 
cial condition of a person or firm, and very few whole- 
sale houses rely on them entirely in deciding upon the 
rating a firm should have. 

938. How the Data is Obtained. — The agencies ob- 
tain their data for their reports from various sources. 
In the first place they ask each man engaged in busi- 
ness to make a detailed written statement to them of 
all his resources and liabilities, together with infor- 
mation as to previous record, etc. 

If he refuses to make a statement, they gather what 
information they can from the bankers, attorneys, and 



522 COMMERCIAL CREDITS 

other business men; in fact, these people are usually 
consulted in any event, for the agency must satisfy 
itself that the statement made by the dealer is not a 
misrepresentation. 

939. Who Their Patrons Are. — These mercantile 
agencies are patronized principally by jobbers, whole- 
sale dealers, manufacturers, and bankers, but they 
find customers among all classes of business men. If 
a wholesale dealer receives an order from a new cus- 
tomer in another city, he immediately turns to his 
reference book to ascertain the rating of his would-be 
customer. If it is satisfactory the goods are usually 
sent, but if the rating is unfavorable the order is re- 
fused, or sent C. O. D. 



COMMERCIAL CREDITS 523 

COMMERCIAL CREDITS 

REVIEW QUESTIONS 

What per cent of transactions are based upon 
credit? 

In selling goods on credit, what must be considered 
first? 

On what is a man's credit based? 

Name three motives w r hich influence people to be 
honest. 

Which is preferable, honesty for policy sake or 
dishonesty? 

Is it a good plan to refer frequently to one's own 
honesty? 

How do you form an estimate of one's honesty? 

May business ability be acquired? 

Do men differ chiefly in natural talent or in willing- 
ness to do hard work? 

What is character? What is reputation? 

Which is the more important? 

Who is the only person able to injure your 
character? 

Does character in a measure take the place of 
capital? 

Is it important to know how a man obtained his 
capital? 



524 COMMERCIAL CREDITS 

Are some kinds of business more hazardous than 
others ? 

Mention some of the advantages and disadvantages 
of the grocery business, also millinery, hardware. 

Is industry important? 

Is it wise to engage in business without experience? 

Name some habits which affect one's credit. 

Are habits a growth or are they formed quickly? 

Is an education important to business success? 

Is education a safeguard against dishonesty? 

Does the fact that a man is married affect his 
credit? 

Do the character, habits, etc., of the wife affect a 
man's credit? 

What are mercantile agencies? 

Name the two most prominent. 

What is the object of these agencies? 

What is contained in the commercial agency rating 
book? 

What is contained in a special report? 

Do business men rely altogether upon these agencies 
in giving a rating to a customer? 

How do mercantile agencies get their information 
regarding business men? 

Who patronize these agencies? 



BANKRUPTCY 525 



CHAPTER XL 



BANKRUPTCY 

940. Bankrupt. — A bankrupt is an insolvent person 
whose property is distributed among his creditors in 
accordance with the provisions of a system called the 
National Bankruptcy Law. 

941. Object of Bankruptcy Law. — The object of a 
bankruptcy law is two-fold: first, the discovery and 
equitable distribution of all the debtor's property 
among his creditors in proportion to their claims; sec- 
ond, the complete discharge of the debtor from all his 
obligations, so that he may again start out in the 
world free from debts, and not afterwards be ham- 
pered or harassed by his old creditors. 

942. A Modern Idea. — The law of bankruptcy is of 
comparatively modern origin. The ancients were 
unanimous in treating inability to meet a legal obli- 
gation as a most serious offense. 

The early law of Rome gave to creditors the savage 
remedy of dividing the carcass of their debtor, or 
selling him and his entire family into slavery. 

943. A National Act. — Congress has the power, under 
the constitution, to establish uniform laws on the sub- 
ject of bankruptcy throughout the United States, and 



526 BANKRUPTCY 

on four different occasions this power has been ex- 
ercised by enacting national bankruptcy laws. The 
first one was in 1800, the second in 1841, the third in 
1867, and the fourth and present laws in 1898. 

Each act, except the last one, was repealed after 
being on the statute books but a few years, and it re- 
mains to be seen how long the present law will prove 
satisfactory. 

944. Voluntary and Involuntary. — The law recog- 
nizes two classes of bankrupts. Those who find them- 
selves deeply in debt and are willing to surrender all 
they have in order that they may have their obliga- 
tions canceled are called voluntary bankrupts. Those 
who have committed any of the several acts of bank- 
ruptcy defined in the law, and for that reason are 
forced into bankruptcy, are called involuntary 
bankrupts. 

945. Who May Become Bankrupts — First, any per- 
son who owes debts, except a corporation, shall be 
entitled to the benefits of this act as a voluntary bank- 
rupt. Private bankers, or banks incorporated under 
the state or territorial laws, may be adjudged volun- 
tary bankrupts. 

Second, any natural person, except a wage-earner or 
a person engaged chiefly in farming or tilling the soil; 
any. unincorporated company, and any corporation 



BANKRUPTCY 527 

engaged principally in manufacturing, trading, print- 
ing, publishing, or mercantile pursuits, owing debts 
to the amount of f 1,000 or over, may be adjudged an 
involuntary bankrupt upon default, or on impartial 
trial, and shall be subject to the provisions, and be en- 
titled to the benefits of the national bankruptcy law. 

946. Acts of Bankruptcy. — Acts of bankruptcy are 
as follows : 

1. Conveying, transferring, concealing, or remov- 
ing any part of the property with intent to hinder, 
delay, or defraud any creditors. 

2. Transferring while insolvent any portion of the 
property to one or more of the creditors, with intent 
to give them preference over the others. 

3. Suffering or permitting, while insolvent, any 
creditors to obtain a preference through legal 
proceedings. 

4. Making a general assignment for the benefit of 
creditors. 

5. Admitting in writing his inability to pay his 
debts and his willingness to be adjudged a bankrupt 
on that ground. 

A petition may be filed against a person who is in- 
solvent and who has committed an act of bankruptcy 
within four months after the commission of the act. 

947. Courts of Bankruptcy. — The district court of 



528 BANKRUPTCY 

the United States in the several states, the supreme 
court of the District of Columbia, the district courts 
of the several territories, and the United States court 
in the Indian Territory and the District of Alaska 
are, by the act of 1898, designated as the courts of 
bankruptcy. 

948. Referees. — For convenience and to facilitate 
the work, courts of bankruptcy shall, within the terri- 
torial limits of which they respectively have jurisdic- 
tion, appoint referees, each for a term of two years, 
and may, at their discretion, remove them for cause ; 
and from time to time change the limits of the districts 
of the referees, so that each county where the services 
of a referee are needed may constitute at least one 
district. 

The referees act under the instruction of the court 
and perform many of the functions of a judge in the 
cases brought before them. 

949. Duties of a Bankrupt.. — A bankrupt shall (1) 
attend the first meeting of his creditors if so directed 
by the court; (2) comply with all lawful orders of 
the court; (3) examine the correctness of all claims 
filed against his estate; (4) execute such papers as 
shall be ordered by the court; (5) transfer to his 
trustee all his property in foreign countries; (G) in- 
form his trustee if he learns of any creditors or other 



BANKRUPTCY 529 

person trying to evade the provisions of the act; (7) 
prepare and file in court a schedule of his property 
and a list of his creditors and the security held by 
thein, if any. 

950. Appointment of Trustee. — The creditors of a 
bankrupt estate shall, at their first meeting after the 
adjudication (ad-ju-di-ka'-shun), appoint one of three 
trustees of such estate, whose duty shall be to take 
charge of the property and handle it according to in- 
structions of the court. If the creditors do not ap- 
point a trustee, then the court shall do so. 

951. Exemption of Bankrupts. — The National Bank- 
ruptcy Law does not affect the allowance to bankrupts 
of the exemptions which are prescribed by the state 
laws in force at the time of the filing of the petition in 
the state wherein they have had domicile for the six 
months, or the greater portion thereof, immediately 
preceding the filing of the petition. 

952. Death or Insanity of Bankrupts. — The death or 
insanity of the bankrupt shall not abate the proceed- 
ing, but it shall be conducted and concluded in the 
same manner, so far as possible, as though he had not 
died or become insane; but in case of death, the widow 
and children shall be entitled to all rights of dower 
and allowances fixed by the laws of the state of the 
bankrupt's residence. 

34 



530 BANKRUPTCY 

953. Compositions. — After a bankrupt has been ex- 
amined in open court or at a meeting of his creditors, 
and has filed in court the schedule of his property and 
list of creditors, he may offer terms of composition or 
compromise to his creditors. 

After such offer has been accepted in writing by a 
majority in number and amount of all creditors, an 
application may be filed to have the composition con- 
firmed, provided the price to be paid by the bankrupt, 
together with the money necessary to pay all costs 
and prior claims, has been deposited as designated by 
the court. 

954. Composition Set Aside.: — The judge may, upon 
the application of parties in interest, set the same 
aside and reinstate the case, if it shall be made to ap- 
pear upon a trial that fraud was practiced in the pro- 
curing of such composition, and that a knowledge of 
such fraud has come to the petitioners since the con- 
firmation. Such application must be filed within six 
months after the confirmation. 

955. Discharge. — A discharge in bankruptcy shall 
release a bankrupt from all provable debts, except in 
the following cases : 

1. Such debts as are due as taxes to the United 
States, the state, county, district, or municipality in 
which he resides. 



* BANKRUPTCY 531 

2. Judgments in action for fraud, obtaining prop- 
erty by false pretense, or for wilful and malicious in- 
juries to the person or property of another. 

3. Debts which have not been duly scheduled in 
time for proof and allowance, unless such creditor 
had notice, or actual knowledge of the proceedings in 
bankruptcy. 

4. Debts created by fraud, embezzlement, misappro- 
priation, or defalcation, while acting as an officer, or 
in a fiduciary (fi-du'-shi-a-ri) capacity, that is, a posi- 
tion of trust, such as a guardian or attorney. 

956. Discharge Revoked. — The judge may, upon ap- 
plication of parties in interest who have not been 
guilty of undue laches or negligences, revoke the dis- 
charge if, upon a trial, it shall be made to appear that 
it was obtained through the fraud of the bankrupt, 
and that a knowledge of the fraud has come to the 
petitioners since the discharge was granted. Such 
application must be made within six months after the 
granting of the discharge. 

957. Codebtor of Bankrupt. — The liability of a per- 
son who is codebtor with, or guarantor, or in any 
manner a surety for a bankrupt shall not be altered 
by the discharge of such bankrupt. 

958. Set-offs and Counter-claims. — In all cases of 
mutual debts or mutual credits between the estate of 



532 BANKRUPTCY 

a bankrupt and a creditor, the account shall be bal- 
anced and the one debt shall be set off against the 
other, and the balance shall be allowed or paid. 



BANKRUPTCY 

REVIEW QUESTIONS 

Who is a bankrupt? 

Does the bankruptcy law favor the debtor or the 
creditor? 

Is it of recent origin? 

Were people formerly severe with delinquent 
debtors? 

Is the present law an act of Congress? 

Is it the first bankruptcy law passed in this 
country? 

Distinguish between voluntary and involuntary 
bankrupts. 

Who may become voluntary bankrupts? 

Who may become involuntary bankrupts? 

What are acts of bankruptcy? 

In what courts may a petition of bankruptcy be 
filed? 

Who is a referee, and how is he appointed? 

Is the state divided into districts, and if so, of what 
size? 



BANKRUPTCY 533 

Name the duties of a bankrupt. 

Who is a trustee and how appointed? 

Does the bankruptcy law recognize the state ex- 
emption law? 

Does the death or insanity of the bankrupt stop 
proceedings? 

What is meant by composition? 

May it be set aside? 

What is a discharge in bankruptcy? 

Are all debts discharged? 

May a discharge be revoked? 

Are codebtors of bankrupts discharged? 

What is counter-claim or set-off? 



534 GLOSSARY 



GLOSSARY 

Abatement — Stopping, decreasing. 

Abduction (ab-duk'-shon) — To carry away by force. 

Acceptor — (ak-sep'-tor) — One who writes "Accepted" across a 

bill or draft and thereby becomes responsible for the 

payment. 
Acquittal (a-kwit'-al) — A verdict of "not guilty." 
Act of God — An act of natural forces which could not have been 

foreseen. 
Action — A suit in court. 

Ad libitum (ad-lib'-i-tum) — At one's pleasure. 
Adjustment (a-just'-ment) — The act of settling. 
Affidavit (af-i-da'-vit) — A sworn statement. 
Agistor (a-gis'-tor) — One who pastures stock. 
Alias (a'-li-as) — An assumed name. 
Alibi (al'-i-bl) — A plea of having been elsewhere at the time an 

offense was committed. 
Alien (al'-yon) — A foreigner. 

Alimony (al'-i-mo-ni) — An allowance to the wife from the hus- 
band in divorce proceedings. 
Allonge (a-lunj') — A slip of paper attached to a draft to receive 

endorsements when the back of draft will hold no more. 
Alteration — Any material change in a negotiable paper. 
Ambiguous (am-big'-u-us) — Of doubtful or uncertain nature. 
Appurtenance (a-per'-te-nans) — That which belongs to another 

thing. 
Arbitration (ar-bi-tra'-shon) — Settling a dispute out of court, by 

persons agreed upon. 
Arson (ar'-son) — Malicious burning of a house. 
Assault (a-salt) — An unlawful attack upon any person. 
Attache (at-ta-sha/) — One attached to another person, especially 

to an embassy. 
Attachment — A writ issued by the court directing an officer to 

take possession of certain property. 
Attestation (at-es-ta'-shon) — Witnessing. 
Attorney in fact — A private attorney having authority to act in 

a particular matter. 



GLOSSARY 535 

Bail — Security for appearance in court. 

Bailment — The delivery of a thing to another without trans- 
ferring .the ownership. 

Barter — To exchange one article for another. 

Battery — Unlawful beating of any person. 

Beneficiary (ben-e-fish'-i-a-ri) — One who receives a benefit. 

Bequeath (be-kweth') — To give by will. 

Bilateral — Two-sided. 

Bona fide (bona fi'-de) — In good faith. 

Brief — The principal points of a lawyer's argument. 

Buyer's option — A privilege which the purchaser has of taking 
the article at a price agreed upon within the time specified. 

By-bidder — One who bids in behalf of the owner for the purpose 
of raising the price. 

Carte blanche (kart ' blansh) — Unlimited authority to act or 

decide. 
Casualty (kaz'-u-al-ti) — What happens by chance. 
Caveat (ka'-ve-at) — A notice filed in the patent office. 
Caveat emptor (ka'-ve-at) — Let the buyer beware. 
Chattel (chat'-el) — An article of personal property. 
Codicil (kod'-i-sil) — A writing by way of supplement to a will. 
Collateral (ko-lat'-e-ral) — Accompanying, aiding. 
Commercial law — The lav/ by which commerce is regulated. 
Common law — Those customs which by long usage have become 

crystallized into law. 
Consideration — The motive which prompts one to enter into a 

contract. 
Constituent (kon-stit'-u-ent) — One who appoints another as his 

agent. 
Constructive delivery — A delivery not actually made, but one 

recognized by law. 
Contempt of court — Disobedience or open disrespect to an order 

of court. 
Contingency (kon-tin'-jin-si) — An event that may or may not 

occur. 
Corporation — An artificial person created by law. 
Coup d' etat (koo-dah-tah') — A bold stroke of policy. 

Decree (dekre') — A judgment or award. 
De facto (de-fak'-to) — In fact, in reality. 

Defendant (de-fen'-dant) — A party against whom an action at 
law is brought. 



536 GLOSSARY 

Demur (de-mer') — To file an objection. 

Deponent (de-po'-nent) — One who makes an affidavit. 

Desideratum (de-sid-e-ra'-tum) — Something desired,. 

Dictum (dik'-tum) — An opinion by a judge outside of the point 

to be decided, or a remark given without deliberation. 
Digest (dl'-jest) — A summary or compilation of concise 

statements. 
Distrain (dis-tran') — To seize the property of a tenant for rent 

due. 
Domicile (dom'-i-sil) — A place of residence. 
Dower — The interest which a widow has in the real estate of 

her deceased husband. 
Duress (du'-res) — Restraint of liberty. 

Earnest — Part payment to bind a bargain. 

Easement (ez'-ment) — The right one possesses in the land of 
another, distinct from ownership. 

Ejectment (e-jekt'-ment) — The act of dispossessing or ousting. 

Eleemosynary (el-e-mos'-i-na-ri) — Of or pertaining to alms. 

Emancipation (e-man-si-pa'-shon) — Freeing a minor from paren- 
tal control. 

Enjoin (en-join') — To command. 

Escheat (es-chef) — The reverting of lands to the state. 

Estoppel (es-top'-el) — A bar by which a man is prevented from 
denying a fact, on account of his own previous act or 
representation. 

Et cetera (et-set'-e-ra) — And so forth, abbreviated etc. 

Execution (ek-se-ku'-shon) — The act of signing, sealing, and de- 
livering an instrument; the official order by which an officer 
is empowered to carry a judgment into effect. 

Executory (eg-zek'-u-to-ri) — Something to be carried into effect 
in the future. 

Executrix (eg-zek'-u-trix) — A female executor. 

Exemplary (ek'-sem-pla-ri) — Serving as an example. 

Ex officio (eks-o-fish'-i-o) — By virtue of office. 

Ex parte (eks-par'-te) — One side or for one party only, as ex parte 
evidence. 

Ex post facto law — A law which makes a crime of an act done 
before its passage. 

Federal Constitution — The fundamental or organic law of the 
United States. 



GLOSSARY 537 

Fee simple — An absolute estate of inheritance. 

Fee tail — An estate descendable to a certain line of heirs only. 

Felony (fel'-on-i) — Any high crime punishable by death or 

imprisonment. 
Franchise (fran'-chiz) — A privilege of a public nature conferred 

upon an individual or corporation. 

Garnishee (gar-ni-she') — To stop in the hands of a third person, 

money due to the plaintiff. 
Garnishment (gar'-nish-ment) — Warning to a person in whose 

hands the effects of another are attached. 
Grantee (gran-te') — A person to whom land is granted or 

conveyed. 
Grantor (gran'-tor) — A person who grants or conveys land. 
Guaranty (gar'-an-ti) — To become responsible for the obligation 

of another person. 

Habeas corpus (ha/ -be-as kor'-pus) — A writ issued by a judge 
requiring a person to be brought into court. 

Hereditament (her-e-dit'-a-ment) — Any property that may be 
inherited. 

Homicide (hom'-i-sid) — The killing of a human being. 

Identification (Iden'-ti-fi-ka'-shon) — To establish the identity of. 

Impolitic (im-pol'-i-tik) — Not according to good policy. 

Inchoate (in'-ko-at) — Recently or just begun. 

Indemnify (in-dem'-ni-fl) — To make good, to reimburse. 

In extenso (in eks-ten'-so) — In full, as to print a paper in extenso. 

Injunction (in-junk'-shon) — An order of court prohibiting some 
one from doing a certain thing. 

Inquest (in'-kwest) — A judicial inquiry. 

In re (in re) — In the matter of. 

Insolvency (in-sol'-ven-si) — The condition of being unable to 
pay one's debts. 

In statu quo (in sta'-tu kwo) — In the condition in which it was 
before. 

International law — The law which regulates the intercourse of 
nations. 

Intestate (in-tes'-tat)) — One dying without having made a will. 

In toto (in to- to) — In all, in the whole. 

Involuntary alienation (in-vol'-un-ta-ri al-yen-a'-shon) — The con- 
veyance of property without the consent of the owner. 

Ipse dixit (ip'se dik'-sit) — An assertion without proof. 



538 GLOSSARY 

Judgment (juj'-ment) — The decision of a judge. 

Laches (lach'-ez) — Inexcusable delay. 

Larceny (lar'-se-ni) — Stealing. 

Legacy (leg'-a-si) — A gift of personal property by will. 

Lessee (le-se') — A person to whom a lease is granted. 

Lessor (les'-or) — One who grants a lease. 

Lex loci (lo-si) — Law of the place. 

Libel (ll'-bel) — Malicious misrepresentation. 

Lien (le'-en) — A right to hold property as against the owner for 

some claim. 
Liquidated damages (lik'-wi-dat-ed) — Damages which are fixed 

in amount by contract. 
Malfeasance (mal-fe'-zans) — A wrongful or unlawful act. 
Mandamus (man-da'-mus) — A writ issued by a superior court 

commanding a person or lower court to do a certain thing. 
Mandatary (man'-da-ta-ri) — One who acts for another. 
Mandator (man-da'-tor) — The person who employs another. 
Metes and bounds — An early system of surveying by which 

streams, rocks, trees, etc., served to mark the limits of an 

estate. 
Misfeasance (mis-fe'-zans) — The doing of a lawful act in a 

wrongful manner. 
Misnomer (mis-no'-mer) — Use of a wrong name. 
Mortgagee (mor-ga-je') — One to whom property is mortgaged. 
Mortgagor (mor'-gaj-or) — One who mortgages property. 
Municipal law (mu-nis'-i-pal) — The law of any municipality as 

distinguished from international law. 
Naturalization (nat'-u-ral-i-za'-shon) — The act of investing a for- 
eigner with the rights of a natural citizen. 
Nolle prosequi (nol'-e pros'-e-kwi) — Statement of plaintiff that 

he will not prosecute the case. 
Non compos mentis (non kom'-pos men'-tis) — Not capable men- 
tally, of unsound mind. 
Non est — Is not. 
Nonfeasance (non-fe'-zans) — Omission of some act which should 

have been performed. 
Nudum pactum (nu'-dum pak'-tum) — A naked contract or promise 

made without consideration. 
Nuisance (nu'-sans) — That which is offensive or injurious. 
Nuncupative will (nung'-ku-pa-tiv) — Verbal, or unwritten will. 
Ouster (ous'-ter) — Ejecting, or putting one out of possession of 

his property. 



GLOSSARY 539 

Per diem — By the day. 

Perjury (per'-ju-ri) — Wilful utterance of false testimony under 

oath. 
Per se — By itself considered. 
Petty larceny — Stealing anything of less than a certain value 

specified by statutes. 
Plaintiff (plan'-tif) — One who sues another. 
Post diem — After the day. 
Post mortem — After death. 

Posthumous (pos'-tu-mus) — Born after the death of the father. 
Potential (po-ten'-shal) — Possible, as opposed to actual. 
Power of attorney — An instrument by which one person ap- 
points another as his agent to do some special act. 
Prescription (pre-skrip'-shon) — Rights which arise from long 

use. 
Prima facie (pri-ma fa'-shi-e) — At first view or appearance. 
Primogeniture (pri-mo-jen'-i-tur) — The law by which the eldest 

son succeeds to all of his father's real estate. 
Priority (pri-or'-i-ti) — Having the first right. 
Promoter (pro-mo'-ter) — One who organizes an institution. 
Protest (pro'-test) — The steps taken to hold a drawer and en- 
dorser of a paper when it has been dishonored. 
Proxy (prok'-si) — One who represents another. 
Quasi (qua'-sl) — A prefix meaning as if, nearly, apparent. 
Quit-claim deed — A deed without warrant of title. 
Qui vive (ke-veV) — To be watchful, on the alert. 
Quo warranto (kwo wo-ran'-to) — A writ demanding that a person 

show by what warrant he exercises certain privileges. 
Recoupment (re-koop'-ment) — Holding back a part as a discount. 
Regime (ra-zhem') — Character of government and social system. 
Reimburse (re-im-bers') — To pay back, to refund. 
Replevin (re-plev'-in) — An action to recover possession of prop- 
erty wrongfully held by another. 
Residue (rez'-i-du) — Remainder, what is left over. 
Restraint of trade (re-stranf) — Hindering trade. 
Resume (ra-zu-ma') — A summing up, a condensed statement. 
Salvage (sal'-vaj) — Property saved from destruction by extra- 
ordinary effort, as the saving of a ship from the sea, fire, 
or pirates. 
Seal — An impression on paper or wax attached to a document 
after the signature. 



540 GLOSSARY 

Seizen (se'-zin) — Possession of property under rightful title. 

Set-off — A counter-claim; one debt set up against another. 

Sine die (sl'-ne dl'-e) — Without date. 

Sine qua non (si'-ne kwa-non) — Something absolutely indispen- 
sable. 

Specialty (spesh'-al-ti) — A contract under seal. 

Statute law (stat'-ut) — A law prescribed by a legislative power. 

Statute of frauds — A statute to prevent frauds requiring certain 
contracts to be written. 

Statute of limitations — Statute by which a right of action is 
limited to a certain period of time. 

Subpoena (sub-pe'-na) — A writ commanding attendance at court. 

Subrogation (sub-ro-ga'-shon) — Putting of one person or thing in 
place of another. 

Summons (sum'-onz) — A writ calling the defendant to appear 
and answer the charge against him. 

Surety (sur'-ti) — One who binds himself for another. 

Tenant (ten'-ant) — One having temporary possession of land. 
Tort — A wrongful act which subjects the doer to an action for 

damages. 
Trespass (tres'-pas) — Unlawful or forbidden entrance. 
Trover (tro'-ver) — An action to recover the value of chattels 

wrongfully converted by another. 

Ultimatum (ul-ti-ma'-tum) — A final proposal or statement of 

conditions. 
Ultra vires (ul-tra vi'-rez) — Beyond the legal power of a person 

court, or corporation. 
Unilateral contract (u-ni-lat'-e-ral) — An agreement which binds 

one person only. 
Usury (u'-zhu-ri) — A higher rate of interest than is allowed by 

law. 

Venire (ve-ni'-re) — A writ directing the sheriff to summon a 

jury. 
Verbatim et literatim (ver-ba'-tim et lit-e- ra'-tim) — Word for 

word and letter for letter. 

Waiver (wa'-ver) — Giving up some known right. 

Ward — One who is under a guardian. 

Warranty (war'-an-ti) — To guarantee. 

Waste — Unnecessary injury done by a tenant to real estate. 



GENERAL INDEX 



541 



GENERAL INDEX 



(References are to sections.) 



Abstract of Title 738 

Acceptance — 

definition 185, 246 

drafts which should be 

accepted 247 

effect of 248 

when to present it 249 

who should present it. . . .250 

where to present it 252 

excuses for failure 253 

how to present it 254 

effect of conditional ac- 
ceptance 255 

effect of acceptance in 

different place 256 

what acceptance admits.. 257 

non-acceptance 258 

non-payment 266 

protest (see Protest) ...267 

Accommodation note 190 

Agency — 

defined 389 

parties 390 

classes 391 

general 392 

special 393 

auctioneer 394 

professional 395 

lawyer 396 

attorney in fact 398 

how appointed 399 

implied 402 

notice to agents 403 

duties of agents 404 



Agency — Continued 
must use principal's 

name 409 

must keep accounts 410 

follow usage of trade. . . .412 

no adverse interest 413 

liability of agent to third 

party 415 

when agent exceeds au- 
thority 416 

when principal is un- 
known 417 

misfeasance and nonfea- 
sance 420 

liability of principal to 

agent 421 

implied promise 424 

reimbursement of agent. .425 
liability of principal to 

third party 427 

dissolution 430 

Alien — 

definition 37 

how naturalized 38 

children of 38 

Alien Enemies — 

definition 37 

contracts void 37 

Allonge 218 

Alteration 380 

Ambiguous instruments ...300 
Articles of Incorpora- 
tion 486, 827 

Attachment 118 



542 



GENERAL INDEX 



(References are to sections.) 



Attorney in fact 398 

Auctioneer 394 

Bailment — 

denned 531, 529 

parties 530 

kinds 533 

degree of care 534 

deposits 536 

right to use 538 

mandate 541 

gratuitous loan 547 

pledge 554 

pledge unlike mortgage. .555 

right to sell pledge 561 

bailment of hire 563 

hire of things 564 

hire of services 568 

hire of custody 572 

hire of carriage 581 

carrier of passengers 

593, 594 
baggage 595 

Bankruptcy Laws — 

defined 940 

object 941 

modern idea 942 

national act 943 

voluntary and involun- 
tary 944 

who may become a bank- 
rupt 945 

acts of bankruptcy 946 

courts of bankruptcy. .. .947 

referees 943 

duties of bankrupt 949 

trustee 950 

exemptions 951 

death of bankrupt 952 

composition 953 



Bankruptcy Laws — Continued 

discharge 955 

codebtor of bankrupt. .. .b57 
set-off or counter-claim. . .958 

Banks and Banking — 

defined 80S 

ancient origin 809 

Bank of Venice 810 

Bank of England 811 

Bank of North America. .812 
Bank of United States.. 813 
Second National Bank of 

U. S 814 

Jackson's war on banks. 814 

wildcat banks 815 

end of state bank circu- 
lation 816 

benefit to society 818 

moral influence 819 

kinds of banks 820 

national banks 821 

state banks 822 

private banks 823 

object of national banks. .824 
controller of currency. . .825 
application to organize. .826 
articles of association. . . .827 

number of persons 828 

certificate of organiza- 
tion 829 

certificate of officers 830 

must be natural persons. .831 

capital required 832 

shares of stock 833 

payment of stock 834 

directory 835 

election of directors 836 

cumulative voting 837 

deposit of bonds 838 



GENERAL INDEX 



543 



(References are to sections.) 



Banks, etc. — Continued 

circulating notes 839 

controller's certificate ...841 

redemption fund 842 

reserve 843 

may hold real estate. .. .844 

examiner 845 

use of word "national". .846 

period of existence 847 

hints to patrons 847 

kiting checks 852 

statement 853-854 

sources of profit 855 

is banking profitable? 856 

deposits 857 

opening an account 858 

signature book 859 

checks and deposit tick- 
ets 860 

Barter 320 

Betting 64 

Bill of Exchange 179 

Bill of Lading 277 

Bonds — 

defined 387 

amount 388 

deposit of 838 

Casualty Insurance — 

defined 649 

accident 650 

employer's 651 

plate glass 652 

guaranty of title 653 

steam boilers 654 

guaranty of honesty 655 

Caveat Emptor 338 

Certificate of deposit 205 

Chattel Mortgage — 

defined 343 



Chattel Mortgage — Continued 

parties 344 

equity of redemption. .. .345 
who may give mortgage. .346 
what may be mortgaged. .347 

filing 349 

object of filing 350 

sale of mortgage 351 

foreclosure before due... 353 

discharge of 354 

laws of various states. . . .355 
Check- 
giving check is not pay- 
ment 149 

defined 194 

convenience of 195 

present promptly 197 

post dating 198 

forged 200 

certified 201 

raised 202 

as receipts 203 

in full of account 204 

stop payment 205 

Cheques — travelers' 2o*5 

Citizens 38 

Civil Law 12 

Collateral Security 556 

Colonies 8 

Colorado Laws — 

legal age 18 

married women 31 

seal abolished 87 

legal holidays 237 

chattel mortgage laws. . . .355 

Commercial Law 13 

Commercial Credits — 
volume of credit busi- 
ness 919 



544 



GENERAL INDEX 



(References are to sections.) 



Commercial Credits — Con. 

importance 920 

careless merchants 921 

no infallible rule 922 

on what credit is based. .923 

honesty 924 

ability 925 

character 926 

capital 927 

kind of business 928 

industry 929 

experience 930 

habits 931 

education 932 

married or single 933 

MERCANTILE AGENCIES 

definition 934 

object 935 

reports 936 

how data is obtained. .. .938 
who patronize them ....939 

Common Law 12 

Constitution of United 

States 8 

Consideration — 

definition 44 

expressed 45 

implied 46 

good 47 

valuable 48 

insufficient 53 

gratuitous 54 

impossible 55 

moral 56 

executed 57 

illegal 58 

failure of 59 

Contracts — 

definition 14 



Contracts — Continued 

essential elements 15 

parties to 16 

who may contract 17 

who are incompetent 19 

of minors 21 

of married women 28 

of lunatics 39 

of intoxicated persons... 41 

under duress 43 

restraining trade 67 

restraining marriage .... 68 
obstructing public jus- 
tice 69 

fraudulent 71 

enjoined by law 73 

executed 84 

executory 85 

specialty 87 

simple or parol 89 

bilateral 90 

unilateral 91 

expressed 92 

implied 93 

verbal or oral 94 

written 95 

joint 96 

joint and several 97 

interpretation of 98 

must be consistent 102 

whole must be per- 
formed 106 

Copyright — 

definition 884 

nationality of author 886 

must give name 888 

filing title 890 

works of art. 892 

several volumes 893 



GENERAL INDEX 



545 



(References are to sections.) 



Copyright — Continued 
who may secure copy- 
rights 894 

assignment 895, 914 

deposit two copies 897 

penalty 898 

serials 901 

new edition 90z 

penalty labeds 903, 907 

notice 904 

fees 908-909 

term of 912 

renewal 913 

international 917 

Corporations — 

denned 469 

differ from partnership. .470 

kinds 471 

corporation sole 472 

quasi corporation 473 

aggregate corporation ...474 

lay corporation 476 

eleemosynari corpora- 
tion 477 

civil corporation 478 

public corporation 479 

private corporations 480 

quasi public corpora- 
tion 481 

how formed 482, 486 

by prescription 483 

special act 484 

general law 485 

charter 488 

promoters 489 

corporators 490 

capital stock 491 

subscribers 492 

payment for shares 493 



Corporations — Continued 

watered stock 494 

issue of shares 495 

sale of shares 496 

how assigned 497 

register transfers 498 

unpaid stock 501 

dividends 502 

preferred and common 

stock 504 

powers of a corpora- 
tion 505 

stockholders' rights 513 

cumulative voting 514 

name of corporation. .. .515 
must not exceed author- 
ity 516 

ultra vires 517 

foreign corporations ....518 
trusts and combines. .. .519 
how to sign corporate 

name 520 

liability of stockholders. .521 
capital stock of a trust 

fund 522 

dissolution 523 

Cumulative voting 514, 837 

Custom — 

as source of law 12 

aid in interpreting con- 
tract 100 

Damages — 

defined 103 

amount of 104 

specific 105 

liquidated 107 

exemplary 108 

Days of Grace 231-232 

Defenses 119 



35 



546 



GENERAL INDEX 



(References are to sections.) 



Delivery — 

sale followed by 324 

definition 330 

to carrier 33o 

constructive 334 

Dower — 

defined 666 

release of 710 

Draft- 
defined 179 

parties 183 

time 184 

acceptance 185 

Duress 43 

Earnest 335 

Endorsements — 

defined 207 

object 208 

where to make them 209 

forms of 210 

in blank 211 

in full 212 

without recourse 213 

restrictive 214 

conditional 215 

who should endorse 216 

order of liability 217 

rights of endorser 219 

effect on endorsers if 
time be extended 291 

Estoppel 87 

Execution 114 

Fire Insurance — 

defined 597 

stock companies 599 

mutual companies 600 

assessment notes 601 

insurable interest 603 

board of underwriters. . .606 



Fire Insurance — Continued 
valued or open policy... 608 

valued policy law 613 

assignment of policy 619 

clause in mortgage 723 

Fraud — * 

fraudulent contract 70 

fraud on each other 71 

fraud on third party.. 47, 72 
overdrawing bank ac- 
count 199 

discharges surety 379 

Frauds, Statute of — 

in general 120 

sale of land 122 

lease of land 123 

not to be performed 

within one year 124 

surety for another 125 

when marriage is the 

consideration 126 

sale of personal prop- 
erty 127 

Garnishment 117 

Growing crops 348 

Guaranty and Suretyship — 

defined 363 

when guarantor is lia- 
ble 364 

consideration 365 

rights of guarantor 367 

minor may be principal. .368 
held to strict terms of 

contract 363 

negotiability of guar- 
anty 370 

continuing guaranty ....371 

guaranty of payment 372 

guaranty of collection 373 



GENERAL INDEX 



547 



(References are to sections.) 



Guaranty and Suretyship — Con. 
distinction between war- 
ranty, guaranty, and 

surety 374 

rights of surety 375 

contribution 376 

subrogation 377 

how surety is discharged 

378, 384 

order of liability 385 

Guardian and Ward — 

definition 796 

how appointed 797 

parents 798 

duties of guardian 799 

bond 800 

expenses of minor 801 

appointed by will 802 

examination of insane 

person 803 

spendthrift 805 

penalty for neglecting 

ward 806 

guardian's fees 807 

Holidays, Legal — 

customary days 234 

Nebraska 235 

Kansas 236 

Colorado 237 

South Dakota 238 

North Dakota 239 

Iowa 2,40 

Illinois 241 

Missouri 242 

Montana 243 

Wyoming 244 

Idaho Laws 133 

Identification 295 

Idiots 40 



Intoxication 41 

Illinois Laws — 

legal age 18 

legal holidays 241 

Interest — 

definition 304 

when interest was not 

charged 305 

legal rate and contract 

rate 306 

on what rate depends 307 

when interest is al- 
lowed 290, 308 

compound interest 309 

table of rates, page. .184-185 
in advance 317 

Iowa Laws — 

legal age 18 

married women 33 

seal abolished 87 

reviving outlawed claims. 133 
chattel mortgage laws 356 

Joint Stock Company — 

defined 524 

how organized 525 

liabilities of stock-hold- 
ers 527 

comparison with partner- 
ships and corpora- 
tions 525, 528 

Judgment 113 

Kansas Laws — 

legal age 18 

married women 30 

seal abolished 87 

reviving outlawed claims. 133 
legal holidays 236 

Landlord and Tenant — 

defined ..740 



548 



GENERAL INDEX 



(References are to sections.) 



Landlord and Tenant — Con. 

parties to lease 741 

what may be leased 742 

a/ lease 743 

term of lease 744 

rent 745 

repairs 747 

when tenant must re- 
build 748 

assignment of lease. .749-750 
lease of mortgaged land. .752 

fixtures 753-754-755 

rights and duties of ten- 
ant 758 

notice to quit 759 

eviction 760 

Law — 

definition 1 

kinds of .... '. 2 

moral law 3 

natural law 4 

international law 5 

municipal law 6 

Law Merchant 13 

Lawyers 396 

Legal Age 18 

Legal remedies — 

in general 109 

steps taken 110 

defenses — 119 

Letters of Credit- 
definition 279 

book of indication 280 

two or more may draw 

money 281 

advantage of 2N2 

how to draw money 283 

cost of 284 

Levy 115 



Life Insurance — 

defined 622 

compared with fire in- 
surance 625 

no limit to amount 626 

insurable interest 627 

beneficiary 630, 632 

rights of creditors 631 

application 633 

stock companies 635 

fraternal companies . . . .636 

mutual companies 640 

plans of insurance 642 

Limitations, Statute of — 

effect of 128 

moral obligation to pay.. 129 
infancy or insanity of 

plaintiff 130 

when it operates 131 

when it begins 132 

how revived 133 

what is new promise. .. .134 
table of all states, pp. .81-82 
where two sign .135 

Lotteries 64 

Lunatics 39 

Mark for signature 165 

Married Women — 

rights under common law 28 
under Nebraska law .... 29 

under Kansas law 30 

under Colorado law 31 

under South Dakota law. 32 

under Iowa law 3& 

under Montana law 34 

under North Dakota law. 35 

under Wyoming law 36 

restraint of marriage 68. 



GENERAL INDEX 



549 



(References are to sections.) 



Mercantile Agencies. . . .£34-939 

Merger 383 

Metes and Bounds 679 

Minors — 

definition zO 

their contracts not void.. 21 
contracts for necessaries. 22 
may ratify or repudiate.. 23 

emancipation Z4 

must return goods if pos- 
sible 25 

"pleading the baby act".. 26 
liable for fraud or crime 27 

Mistakes as to facts 80 

Money — 

legal tender 137 

how to remit ±46 

counterfeit 150 

Money orders 287 

Montana Laws — 

legal age 18 

married women 33 

seal abolished 87 

reviving outlawed claims. 133 

legal holidays z43 

chattel mortgage laws . . .357 

Moral Obligation 129 

Mutual Assent — 

definition 74 

proposition 75 

acceptance 76 

time limit 77 

option 78 

written acceptance 79 

unconditional 81 

Nebraska Laws — 

legal age 18 

married women 28 



Nebraska Laws — Continued 

who may vote 38 

Sabbath breaking ....... 65 

contracts made on Sun- 
day 65 

gambling footnote p. 36 

seal abolished 87 

reviving outlawed claims. 133 
holder of check may sue 

bank 197 

legal holidays 235 

chattel mortgage laws ..358 

school land b87 

Negotiable Instruments — 

importance of 159 

definition 160 

take the place of money, .j.60 

essential elements 161 

parties 162 

in writing Ib5 

payable in money 166 

payable absolutely 168 

negotiable words 170, 189 

time of 1Y1 

maturity of 172 

when no time is stated.. 172 

amount 173 

if writing and figures 

differ 175 

misspelling 1^6 

carelessness in drawing.. 177 

CLASSES 

bill of exchange 179 

convenience of drafts. . . .182 

acceptance 185 

promissory note 186 

joint and several note . . .188 
accommodation note . . . .190 
judgment note 192 



550 



GENERAL INDEX 



(References are to sections.) 



Negotiable Instruments — Con. 

checks 194 

certificates of deposit 205 

CONDITION OF TRANSFER 

in general 220 

bona fide purchaser 220 

must be negotiable 221 

innocent purchaser 222 

must give value 223 

lost bills 224 

before maturity 226 

in usual course 228 

several transfers 229 

when it matures 230 

PRESENTMENT FOR ACCEPTANCE 

define acceptance 248 

effect of acceptance 248 

when to present draft. . . .249 
who should present it. . . .250 

where to present it 252 

excuses for failure 253 

how to present draft 254 

conditional acceptance ..255 
acceptance at different 

place 256. 

what acceptance admits.. 257 
non-acceptance 258 



PRESENTMENT FOR PAYMENT 



why necessary . . 

by whom 

to whom 

when to present 



253 
260 
261 

262 



demand notes and drafts. 263 

where to present 264 

how to present 265 

non-payment 266 

protest 267-275 

effect of extending time. .291 



Negotiable Instruments — Con. 

MISCELLANEOUS 

quasi negotiable papers.. 276 

bill of lading 277 

warehouse receipt 27S 

travelers' letters of 

credit 279 

book of indication 280 

travelers' cheques 285 

bank draft 286 

money order 287 

receivers' certificate 288 

collateral security 289 

when notes draw inter- 
est 290 

extending time of pay- 
ment 291 

partial payment 292 

payable to fictitious per- 
sons, destroyed, or 

lost 294 

identification 295 

alterations, effect of 296 

non-negotiable note 297 

law of place 299 

ambiguous instrument ..300 

I O U 301 

read before signing 302 

North Dakota Laws — 

legal age 18 

married women 34 

seal abolished 87 

legal holidays 239 

chattel mortgages 359 

Notary Public 272 

Nuisance — 

defined 691, 695 

public 692 

private 693 

rights of others 694 



GENERAL INDEX 



551 



(References are to sections.) 



Nuisance — Continued 

must be reasonable 696 

Overdrafts 199 

Partnership — 

denned 439 

what constitutes it 440 

how formed 441 

articles of copartnership. 442 

classes of partners 444 

general partners 445 

dormant or silent 446 

nominal 447 

limited or special 448 

who may be partners. . . .449 

partnership name 450 

duration 451 

profits and losses 453 

powers of each partner.. 454 
when the firm is bound.. 455 
when firm is not bound. .456 

individual liability 457 

rights of creditors 458 

dissolution 459 

notice of dissolution 468 

Pater ts — 

defined 862 

what may be patented. . .863 
may employ attorney. .. .864 
commissioner of patents. .866 
attendance not necessary. 868 
office open to inventors. .870 

caveat 871 

assignment of patent. .. .873 

foreign patents 874 

application 875 

drawings '. 878 

models 880 

duration of patents 882 

final fee 883 



Payment — 

defined 143 

in property 144 

by note 145 

when sent by mail 146 

by note of third party.. 147 

part payment 148, 292 

by check 149 

by counterfeit 150 

presumption of 151 

lapse of time 154 

where applied 155 

extending time 291 

Personal Property — 

defined 318 

choses in action 319 

choses in possession 319 

Power of Attorney 400 

Promissory Note — 

defined 186 

parties 187 

joint and several 188 

Protest — 

object of 267 

definition 268 

when necessary 270 

when not necessary 271 

notice of 273 

"no protest" 274 

waiver of 275 

Real Estate — 

contract for sale of 401 

definition 656 

easements 658 

right of way 659 

water right 660 

party walls 661 

trees 662 

fee simple 664 



552 



GENERAL INDEX 



(References are to sections.) 



Real Estate — Continued 

life estate 665 

dower 666 

homestead 667 

curtesy 668 

estate for years 669 

conditional estate 670 

title of land 671 

title by descent 673 

title by will 674 

title by prescription 675 

involuntary alienation. . .677 

public lands 678 

metes and bounds 679 

U. S. survey 680 

land districts 681 

ranges 683 

townships 685 

sections 686 

school sections 687 

Real Estate Conveyances- 
deed 697 

parties 698 

competency of par- 
ties 699, 770 

warranty deed 701 

quit-claim deed 707 

special warranty 708 

consideration 709 

release of dower 710 

execution of deed 711 

signing 712 

sealing 713 

witnessing 714 

acknowledgement 715 

delivery 716 

recording 717 

land contracts 718 

trust deed 739 



Real Estate Mortgages — 

definition 719 

defeasance clause 720 

equity of redemption. .. .721 

insurance clause 723 

deed intended as mort- 
gage 725 

execution 726 

recording 727 

wife must sign 728-729 

sale of mortgaged land.. 730 

second mortgage 731 

mortgagor has posses- 
sion 732 

assignment of mortgage. .733 
may sue on note alone.. 734 

discharge 735 

refusal to discharge 736 

foreclosure 737 

abstract of title 738 

deed of trust 739 

Receipt — 
possession is presump- 
tion of payment 153 

Receiver's Certificate 288 

Recoupment 158 

Registered letter not safe. .146 

Repose, Statute of 128 

Sale of Personal Property — 

to satisfy judgment 116 

definition 320 

must have title 322 

contract to sell 323 

delivery 324, 330 

subject matter 325 

must exist 326 

potential existence 328 

bill of sale 329 

when title passes 332 



GENERAL INDEX 



553 



(References are to sections.) 



Seal 88-71:5 

Set-off 157 

Summons Ill 

Subject Matter — 

definition 60 

what it may be 61 

illegal 63 

immoral 64 

impolitic 66 

restraint of trade 67 

restraint of marriage.... 68 

Signature 167 

South Dakota Laws — 

legal age IS 

married women 32 

seal abolished 87 

reviving outlawed claims. 133 

legal holidays 238 

chattel mortgage laws... 360 

Statute Law 11 

State Government 9 

Suggestions — 
study the constitution. ... 8 

read before signing 302 

be prompt 303 

Surety (see Guaranty) 
Tender, Legal — 

defined 136 

list of legal tender 

money 137 

effect of 138 

national bank notes 139 

how made 140 

exact amount 141 

in property 142 

Time 82, 381 

Title 322, 332, 560 

Tort- 
defined (footnote p. 63) . .419 



Trial 112 

U. S. survey 680-690 

Usury — 

definition 311 

penalty 312 

object of usury laws 313 

table of laws p. 184-185 

what constitutes 314 

must know the law 315 

efforts to conceal 316 

Warehouse receipt 278 

Warranty — 

defined 337 

when should be made 339 

of quality 340 

of title 341 

Wills- 
defined 761 

parties 762 

who may be donee 763 

unwritten will 765 

witnesses 766 

testator chooses donee... 767 

prospective devise 768 

codicils 769-770 

revoking 771 

depositing 772 

opening 773 

executor 774-775 

probating 776 

contesting 777-778 

letters testamentary 779 

removal of executor 780 

corporations as donees... 781 

law of place 782 

minors' wills 783 

administrator 785 

duties of administrator. .787 
fees 790 



554 GENERAL INDEX 

(References are to sections.) 

Wills — Continued Wyoming Laws — Continued 

insolvent estate 792 married women 36 

order of payment 793 reviving outlawed claims. 133 

Wyoming Laws — legal holidays 244 

legal age 18 chattel mortgage laws .... 362 



INDEX TO FORMS 



555 



INDEX TO FORMS 



Page 
Acceptance — 

proper form 143 

improper form 146 

Ambiguous Instrument 174 

Articles of Incorporation — 

for national bank 474 

Assignment — 

for back of note 224 

of bonds 224 

of wages 225 

Bonds — 

simple bond 221 

bond for deed 222 

bond for deed with ac- 
knowledgment 223 

assignment of 224 

Bill of sale 194 

Certificate of Deposit 123 

Certificate of Stock 283 

Chattel Mortgages 207 

Chattel Mortgage Release.. 208 
Checks — 

showing common error. . .106 

properly drawn 116 

in full of account 122 

for less than one dollar.. 118 

certified 120 

travelers' cheque 163 

back of wandering check. 474 
Contract for Sale of Land. .395 
Deed — 

warranty, short form 390 

agreement for warranty 
deed 391 



Page 

Deed — Continued 

quit-claim deed of prop- 
erty and mining 

rights 394 

quit-claim, short form 395 

of assignment 408 

Deposit Ticket 481 

Drafts- 
Bank draft 110 

foreign draft 110 

sight draft Ill 

with "no protest" 154 

accepted draft 143 

improperly accepted 146 

Foreign Bill of Exchange. .110 

Guaranty — 
letter of continuing 

guaranty 213 

general quantity 220 

of payment 221 

of collection 221 

of note 221 

with collateral 221 

Interest and Usury 

Table 184-185 

Land Contract 395 

Lease — 

lease of store 421 

clause to pay taxes 423 

clause against assign- 
ment 423 

clause for surety to sign. 423 

Letter of Credit — 
face of 159 



556 



INDEX TO FORMS 



Page 
Letter of Credit — Continued 

back of 160 

book of indication 161 

travelers' cheque 163 

Money Orders — 
American Express Com- 
pany 165 

Pacific Express Com- 
pany 166 

Mortgage — 

for real estate 407 

deed of assignment 408 

release of real estate 

mortgage 409 

release of real estate 
mortgage showing no- 
tarial seal 51 

chattel mortgage 207 

Notarial Protest 155 

notice of 156 

Notes — 
joint and several note... 101 

promissory note 112 

judgment note 115 

non-negotiable note 172 

Notices — 
landlord's notice to quit 

for non-payment 424 

landlord's notice to quit 

at end of term 424 

landlord's notice to de- 
termine tenancy at 

will 425 

Partnership — 
articles of 265 



Page 

Partnership — Continued 

various covenants ...267-268 

another form 268 

certificate of limited 
partnership 270 

Power of Attorney — 

general 241 

power of substitution. . . .245 

short form 245 

to collect debts 246 

to sell chattels 247 

to sell shares of stock... 247 
to subscribe for stock... 248 

to vote as proxy 248 

proxy, another form 243 

proxy with affidavit of 

ownership 249 

to receive dividends 249 

to sell land 250 

to sell land, another 
form 396 

Receipts — 

warehouse 158 

Receipt in Full of Account. . 94 

Release — 

real estate mortgage.... 65 
chattel mortgage 208 

Sale, Bill of 194 

Signatures — 

by mark 386 

of business men 479 

Stock Certificate 283 

Survey of Townships and 

Ranges 373 

Will 437 



JACOB NORTH I CO.. PRINTERS. LINCOLN 



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